During a bullish trading day, many alternative cryptocurrencies have witnessed significant double-digit increases. One standout performer has been Cardano [ADA], which has surged by 10% and is edging closer to the $1 milestone following a period of slow consolidation.
This raises the question: Is this the breakout moment for ADA, presenting a prime opportunity to buy during the dip, or is it merely another round of speculative fervor destined to dissipate?
Short Positions Retreat as the New Year Injects Fresh Momentum
Cardano’s price movement tells an intriguing tale. While Bitcoin [BTC] reached a new all-time high of $108K in mid-December, Cardano’s trajectory took a different course.
Starting from early December, ADA entered a bearish trend, hinting at a potential divergence from the broader market rally.
After peaking at $1.25, profit-taking seems to have ensued, particularly as the RSI indicated overbought conditions.
Furthermore, the ADA/BTC pair has been forming lower lows, signaling a lack of rush from Bitcoin holders to acquire Cardano, resulting in ADA’s slump.
However, with the fourth quarter behind us and Bitcoin maintaining a stable range, investors are now diversifying into high-cap assets, leading to a surge in the new year.
Short-sellers have been caught off guard, resulting in a substantial $107 million in liquidations.
As the market turns green, a short squeeze has set off a bullish trend across the market, including Cardano, with approximately $1.78 million in short positions getting liquidated.
But caution is warranted. While the market mood is improving, Cardano must break through the $1 mark in the coming days to ignite FOMO, attracting fresh investments and generating interest among diversifying investors.
Thus, Upholding the $1 Level Is Crucial for Cardano’s Prospects
Achieving a price breakthrough is one thing, but sustaining it is another challenge that Cardano grappled with in Q4. The struggles to hold $1, evident through three failed attempts in December, highlighted the scarcity of retail capital leading to deeper retracements.
Comparatively, Ripple [XRP] managed to surpass two significant psychological thresholds, maintaining stability at $2 even amidst a broader market decline.
This contrast could give investors pause as the lack of notable capital flow from BTC to ADA in Q4 raises uncertainties regarding the sustainability of ADA’s recent 10% surge.
Rival tokens are also intensifying their efforts, indicating that the battle for dominance is far from settled.
Interestingly, ahead of the new year, large holders withdrew 3.5 million ADA from exchanges, triggering the recent uptick and pressuring short-sellers to cover their positions.
While this development may provide a temporary lift to Cardano, establishing $1 as solid support remains a challenging task.
Why?
Unless the ADA/BTC pair can emulate the November uptrend by displaying extended green candlesticks, the rally may not be sustainable based solely on whale activity.
The upcoming days will be pivotal. If BTC maintains moderate activity, investors might redirect funds to ADA. However, the real litmus test will be whether major holders can breach and maintain the $1 level.
Otherwise, this short squeeze could swiftly unravel, plunging ADA back into a downward phase.