The price of Cardano (ADA) is facing a potentially substantial decline of over 20% in August. This forecast is based on the formation of a classic technical pattern known as a bump and run reversal (BARR). The BARR pattern occurs when excessive speculation drives the price higher quickly, leading to a “bull trap.” The pattern consists of three stages: lead-in, bump, and run.
During the lead-in stage, the price steadily trends upward, without any excessive speculation. However, in the bump stage, there is a sharp and rapid increase in price, followed by a complete wipeout of the spike. This leads to the run stage, where the price breaks below the support from the lead-in trendline.
Currently, Cardano appears to have entered the run phase of the BARR pattern, indicating a potential downtrend in the price. If the pattern is confirmed, the downside target for Cardano is estimated to be around $0.22 in August or early September, representing a 20% decrease from its current levels.
However, there is potential for a rebound in Cardano’s price. A possible scenario is a recovery that reaches the 50-day exponential moving average (EMA) of approximately $0.30 in August, reflecting a 5% increase from the current price. Moreover, if the momentum shifts and the pattern transitions into a support level, Cardano could experience a significant uptrend towards the 200-day EMA near $0.34. This would result in an increase of approximately 30% from the current price levels.
On-Chain Fundamentals Offset Bearish Risks
While the technical analysis signals a potential decline in Cardano’s price, on-chain fundamentals present a more optimistic outlook. Accumulation by whale and shark wallets, holding between 100,000 and 1 million ADA, has been steadily increasing since May 2023, with a total value of $116.1 million worth of Cardano. This accumulation coincided with a 25% price decline driven by regulatory concerns in the United States. The actions of these large investors indicate their confidence in the future growth and potential gains of Cardano.
Additionally, Cardano’s key network metrics have shown positive growth in the second quarter. The total value locked (TVL) increased by 9.7% quarter-on-quarter (QoQ), indicating a growing interest in the Cardano ecosystem. Average daily transactions for decentralized applications (DApps) also saw a significant surge of 49% QoQ. This increased network activity is largely attributed to the growth of stablecoins, which fueled a 34.9% QoQ increase in TVL and DApp transactions.
These on-chain fundamentals, alongside the potential for further adoption of Cardano’s ecosystem, should alleviate the bearish risks identified in the technical analysis. With Cardano functioning as a fee settlement and staking token, the increase in network activity and the growing interest from large investors provide a solid foundation for upward price pressure.
Cardano’s price currently faces the vulnerability of a potential 20% decline based on the formation of the bump and run reversal pattern. However, on-chain fundamentals and positive network growth present promising signs for the future of Cardano. The accumulation by whale and shark wallets and the increase in Cardano’s key network metrics demonstrate confidence in the ecosystem’s potential. While the technical analysis indicates a bearish outlook, the potential for a rebound and further upside cannot be ignored. As with any investment, risks exist, but Cardano’s fundamentals may provide the necessary foundation for resilience and growth in its price.