On February 3rd, the digital currency market experienced significant declines, witnessing a 10% decrease in total market capitalization in just one day.
Cardano [ADA] was one of the major losers, plummeting by 24% to be priced at $0.67 at the time of writing.
The drop in the altcoin resulted in the liquidation of over $31 million worth of ADA long positions, marking the second-highest level of long liquidations in a year.
With these positions being forcefully closed, it triggered increased selling activity, leading to added downward pressure on the price.
This squeeze on long positions also caused a significant shift in Cardano’s derivative market, notably reflected in the sharp decline in funding rates.
Recorded Dip in Funding Rates
Cardano’s Funding Rates have witnessed a substantial drop in the past 24 hours, hitting the lowest level recorded in a year.
Currently, this metric stands at -49%, indicating a surge in demand for short positions and decreased confidence in ADA’s potential for growth.
The considerable decrease in Funding Rates signals a bearish sentiment among traders towards the altcoin, with expectations of further downtrends. Nevertheless, such a significant decline could potentially lead to a short squeeze if the trend unexpectedly reverses.
Is Cardano Poised for a Rebound from Its Lowest Point in Two Months?
Following Cardano’s 24-hour decline, its price has hit the lowest level in almost three months, primarily driven by selling activities that amounted to $736M.
However, sellers might be approaching exhaustion as evidenced by the Relative Strength Index (RSI) dipping to an oversold territory of 25.
Additionally, ADA has fallen below the lower Bollinger band with considerable volumes, signifying oversold conditions.
If traders begin to capitalize on the current dip, it could trigger a reversal of the trend. Nevertheless, for a bullish trend to materialize, ADA must successfully surpass the resistance level at $0.84.
Conversely, a drop below the support level of $0.31 could lead to further declines.
Declining DeFi Engagement Signal Continued Downtrend Potential
Data from DeFiLlama revealed a notable decrease in activity on the Cardano network, with the Total Value Locked (TVL) dropping to $312M, marking the lowest figure since early November.
This diminishing engagement in the ecosystem could potentially sustain the bearish trajectory for Cardano. Nonetheless, traders should remain vigilant for any uptick in DeFi activity, as it could coincide with a potential rally.