Earlier this month, the market capitalization of Cardano’s ADA cryptocurrency exceeded $40 billion for the first time since 2022. This surge occurred during a significant rally that propelled ADA to a multi-year peak of $1.32.
However, the momentum of Cardano’s rally has subsided, with the current trading price at $1.02, reflecting a 17% drop over the past week. Additionally, the market capitalization has fallen to $35 billion. Several factors may have contributed to this bearish reversal.
Reduction in Cardano’s DeFi TVL from Previous Highs
Cardano’s decentralized finance (DeFi) Total Value Locked (TVL) hit an all-time high of $708 million on December 3, aligning with ADA’s peak. According to DeFiLlama, the TVL has since decreased significantly, now standing at $611 million alongside the price drop.
Furthermore, Cardano’s DeFi trading volumes have fallen from $31 million to $16 million, indicating reduced utilization of the network in the DeFi space.
The primary DeFi platform on Cardano, the Liqwid lending system, has experienced a 16% decline in TVL within a week. Similarly, the Minswap decentralized exchange (DEX) has also witnessed a comparable decrease.
Historically, an upswing in ADA’s price aligns with increased DeFi engagement. Therefore, decreased usage could continue to impact the price outlook negatively.
Decrease in Active Addresses to a Weekly Low
The usage of the Cardano network has seen a notable reduction, with the daily active addresses hitting the lowest point in a week.
Data from IntoTheBlock indicates a 45% decline in Cardano’s active addresses within a week, dropping from 96,740 to 52,380. Similarly, newly created addresses on the network have reduced from 32,590 to 16,190.
The decrease in active addresses implies waning interest and weaker demand for ADA, signaling a decline in investor confidence which might lead to a bearish sentiment.
Drop in Cardano Whale Balances
Significant Cardano addresses have witnessed a substantial decrease in their holdings, suggesting a potential distribution phase among whales.
Addresses holding between $100,000 and $1 million worth of ADA have experienced a reduction in balances from $6.61 billion to $5.59 billion. Similarly, addresses controlling between $1 million and $10 million tokens have also seen a decrease of over $1 billion in their holdings.
This decline does not necessarily indicate direct selling by whales but rather a decrease in the value of their assets, possibly prompting profit-taking activities.
Prospects of ADA Breaking Free from Bearish Trends
If the Cardano network fails to exhibit an increase in activity, ADA may continue to experience bearish trends. Moreover, a lack of fresh demand to absorb coins from traders seeking to minimize losses could further contribute to the downtrend.
It is crucial for traders to monitor the growth in active addresses, DeFi transactions, and whale accumulation as potential indicators of an upcoming recovery. Furthermore, an overall market rebound could also support a bullish reversal for ADA.