Cardano (ADA) is currently at risk of experiencing a significant price decline of over 20% in August. This potential drop is due to the formation of a bump and run reversal (BARR) pattern, which occurs when excessive speculation drives the price higher rapidly, leading to a “bull trap” situation. The BARR 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, the bump stage is characterized by a sharp advance in price, followed by a complete wipeout of the spike. The run stage occurs when the price breaks below the support from the lead-in trendline. At present, Cardano appears to have entered the run phase of the BARR pattern.
If the BARR pattern is confirmed, the downside target for Cardano would be approximately $0.22 in August or early September, reflecting a 20% decline from its current levels. However, there is also a possibility of a rebound, with the price potentially reaching the 50-day exponential moving average (EMA) near $0.30 in August, indicating a 5% increase from the current price. Moreover, if the price manages to flip the wave into support, a further run-up towards the 200-day EMA near $0.34 could be anticipated, representing a 30% increase from the current levels.
Promising Fundamentals and Offsetting Bearish Risks
Despite the bearish risks, Cardano’s on-chain fundamentals present some promising factors that could counterbalance the potential price decline. Notably, whale and shark wallets holding between 100,000 and 1 million ADA have been accumulating significant amounts of Cardano since May 2023, accumulating a total value of $116.1 million. This accumulation by ADA whales and sharks indicates their confidence in future price gains.
Furthermore, the period of Cardano accumulation by these large holders aligns with the growth in Cardano’s key network metrics in the second quarter. The total value locked (TVL) experienced a 9.7% quarter-on-quarter (QoQ) increase, while the average daily transactions for decentralized applications (DApps) surged by 49% QoQ. The growth in network activity was primarily fueled by stablecoins, with the TVL and DApp transaction movement growing by 34.9% QoQ, from $10.0 million in Q1 to $13.5 million in Q2.
These positive network metrics and the increasing adoption of Cardano’s ecosystem should contribute to the upward pressure on ADA. As a fee settlement and staking token within the Cardano ecosystem, ADA’s value is closely tied to the growth and utilization of the network.
Cardano faces potential risks of a significant price decline in August due to the formation of a bump and run reversal pattern. If confirmed, ADA’s price could decline by over 20% to around $0.22. Nonetheless, promising on-chain fundamentals such as the accumulation of ADA by whale and shark wallets and the growth in key network metrics offer a counterbalancing force to these bearish risks. The increasing adoption of Cardano’s ecosystem and the upward trajectory of its network activity should positively impact ADA’s price and help mitigate the potential downside. Investors and traders should closely monitor both technical patterns and fundamental developments when making decisions regarding Cardano.