CRYPTO

Why is Cardano price up today?

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The price of Cardano (ADA) jumped over 19% to $0.64 on Dec. 9, its highest level in 18 months. It’s up 75% in December alone. 

ADA/USD daily price chart. Source: TradingView

Why is ADA price up? 

Cardano’s recent gains did not accompany any groundbreaking fundamentals. Instead, they appeared on the cryptocurrency market catching up to Bitcoin (BTC) this month.

Notably, Bitcoin’s crypto market dominance has declined 3.5% from its Dec. 6 local peak, indicating that many traders have been rotating capital out of the Bitcoin market to seek profit opportunities in altcoins. That has benefited Cardano, whose market share has jumped over 46% since Dec. 6.

ADA’s crypto market dominance daily performance chart. Source: TradingView

These capital rotations are common in the crypto market. Traders typically sell Bitcoin after a strong price rally and move their winnings to smaller, riskier crypto assets. That is akin to how altcoins performed in early November when Bitcoin’s market share also dipped.

BTC.D vs. altcoin market capitalization daily performance chart. Source: TradingView

Cardano TVL hits record high

The increase in Cardano’s price aligns with a notable surge in the total amount of ADA deposited across its blockchain ecosystem.

On Dec. 9, the total value locked (TVL) in Cardano’s decentralized applications (dapps) reached a record high of 765.22 million ADA. Leading this increase was Lenfi, a lending and borrowing protocol on the Cardano blockchain, which experienced a 90% jump in its ADA reserves.

Lenfi TVL performance chart. Source: DefiLlama

TVL rising effectively remove ADA tokens out of active circulation, which can boost price if demand stays elevated, as seems to be the case with ADA’s current rally.

$12M worth of ADA shorts liquidated

Cardano’s price gains on Dec. 9 coincide with the liquidations of short positions worth around $5 million versus $2.30 million worth of long liquidations. A day before, the ADA market liquidated $6.91 million worth of short positions versus $1.27 million worth of longs.

ADA total liquidations chart. Source: Coinglass

When a short position is liquidated, the platform automatically buys back the asset at the current market price to cover the short. This is because the trader originally sold the asset they borrowed, and now they (or the platform on their behalf) need to buy it back to return it.

If many short positions are liquidated simultaneously (often due to sudden price increases), this results in a significant amount of buying in the market and an increase in ADA price. 

Cardano price correction next? 

Cardano price chart technicals show ADA/USD is now at its most overbought state since May 2021, raising the possibilities of a broader pullback trend.

Related: Why is the crypto market up today?

Notably, ADA’s weekly relative strength index (RSI) was at 82.75 on Dec. 9, way above the overbought threshold of 70. Excessively high RSIs typically precede price corrections, as shown below, meaning ADA is at risk of a selloff period next.

ADA/USD weekly price chart. Source: TradingView

The overbought alarm rings when ADA tests its 0.786 Fib line near $0.648 as resistance. This raises the selloff potential further, pushing Cardano’s price lower toward its multi-month support level near $0.243 by Q1/2024’s close.

Conversely, a decisive breakout above the 0.786 Fib line could send ADA’s price toward the 0.618 Fib line near $1.135 by Q1/2024. That is almost double the current price levels.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.