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Cardano Price Back to Support – On-Chain Metrics Show Undervaluation – ADA Rally Imminent?

Published May 30, 2024 12:05 PM
Valdrin Tahiri
Published May 30, 2024 12:05 PM

Key Takeaways

  • The Cardano (ADA) price has traded in a key range that dictated its trend’s direction for the past two years.
  • On-chain indicators have shown that the price is undervalued, and the bull run has not started yet.
  • Will Cardano bounce at this support area, beginning a bull run, or will it break down from it instead?

The ADA price broke out from a long-term resistance area in December 2023, signaling the beginning of an upward trend. However, this was not the case, since ADA failed to sustain its increase and has fallen since its yearly high in March.

Now, ADA has returned to the breakout level again. Its next move, whether it is a bounce or a breakdown, can set the stage for the future trend.

Cardano Returns to Long-Term Support

The weekly time frame price chart shows that ADA has fallen since its yearly high of $0.81 in March. While the drop led to a low of $0.40, the price bounced and now trades above the $0.45 horizontal area. This area is critical since it has acted as both support and resistance since May 2022.

More recently, the price broke out from the area in November 2023 (green icon), shortly after breaking out from a descending resistance trend line. This signaled the correction is over and a new upward movement had begun.

Cardano Long-Term Movement
ADA/USD Weekly Chart | Credit: TradingView

Whether ADA bounces at $0.45 or breaks down will be critical for the future trend. This is not only because of the price action, but because of the RSI and MACD readings.

The RSI trades slightly below 50, while the MACD is at risk of falling below 0. These levels determine whether the trend is bullish or bearish.

So, a price breakdown below $0.45 will likely cause a decrease in these two indicators, while a bounce could cause them to move into bullish territory.

What Do the On-Chain Cardano Metrics Say?

Interestingly, on-chain indicators for Cardano suggest the rally is still underdeveloped. The MVRV Z-score indicator reveals overvaluation or undervaluation by comparing the market value to the realized value, using the standard deviation of market value to highlight extremes. Readings below 0 signal undervaluation.


ADA On-Chain Readings
MVRV Z-Score | Credit: Santiment

The indicator has been below 0 since February 2022, with the only exception being a brief movement into positive territory in March, coinciding with the yearly high.

In the 2021 bull run, the MVRV Z-score indicator was in positive territory for over a year, culminating with a value of 7.

The Network Realized Profit/Loss (NRPL) indicator gives a similar reading. NRPL measures the daily average profit or loss of coins by comparing their current price to the price at which they last moved addresses.

ADA NUPL Indicator
ADA NUPL Chart | Credit: Santiment

The indicator shows that most of the coins transacted as at a loss. This has been the case for over two years, with the exception being the yearly high in March.

Therefore, on-chain indicators suggest ADA  is undervalued and the actual bull run has not started yet.

ADA Price Prediction: Bounce or Breakdown?

While the long-term readings support a bounce, the daily time frame Cardano price analysis is not as clear. ADA reached its yearly high after completing a five-wave increase on March 14 and has fallen since. The long-term horizontal support area at $0.45 is also the 0.618 Fibonacci retracement support level.

While ADA has bounced above the level, it has also created lower highs (red icons) and a symmetrical triangle. The symmetrical triangle often leads to continuation, and since it transpires after a downward movement, it could lead to a breakdown.

Triangle Movement
ADA/USDT Daily Chart | Credit: TradingView

If this happens, ADA could reach the next support at $0.35, which is both a Fibonacci and a horizontal area.

On top of this, the daily MACD made a bearish cross in negative territory, both considered signs of a bearish trend. During this time, the RSI fell below 50, supporting the negative sentiment.

A breakout from the triangle will invalidate the bearish price prediction, which could catalyze a long-term increase.

Breakdown Before Rally

The long-term Cardano outlook is bullish because of the on-chain readings and the price action above a long-term support area. However, the daily time frame chart shows weakness both in the price action and the indicator readings. So, it is possible that a short-term breakdown will happen, followed by a long-term rally.

Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.
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