Cryptocurrency Market Round-Up

Typically, cryptocurrencies use blockchain technology to record every transaction and are termed digital currencies. There are ~9k+ crypto coins available in the market. Founded in 2017, Cardano (ADA) is a blockchain platform that provides exceptional security and sustainability to decentralized applications, systems, and societies. Cardano has a market capitalization of ~USD 43.03 billion (as per TradingView as of January 13, 2022).

Last week, the benchmark S&P Cryptocurrency Broad Digital Market (BDM) Index opened on a negative note and maintained a negative momentum for the entire week. The index dropped by 410.35 points (~9.10%) to 4100.53 for the week ending January 07, 2022. In the current week starting January 10, 2022, the index is trading with positive momentum. Moreover, other major cryptocurrencies such as Bitcoin and Ethereum witnessed positive momentum for the week.

Having understood the S&P Cryptocurrency BDM Index movement over last week and scenario for the upcoming week, one cryptocurrency that seems ‘Attractive’ at the current level appears to be Cardano (ADA) basis the below technical parameters: -

Cardano (ADA)

Noted below are the generic insights, indicative entry price, resistance levels, and stop-loss for the next 1-2 weeks duration for the ADA:

Entry level and Resistance Levels as mentioned herein are only indicative in nature as per trend analysis and further evaluation is required when looking at cryptocurrency under discussion.

Note: The reference Information in this report has been sourced from TradingView.

ADA Technical Analysis Summary (On the 4 hourly Chart):

On the 4 hourly chart, Cardano price witnessed a breakout of the falling trendline resistance at USD 1.22 level on January 12, 2022. After the breakout, prices have sustained above the downward sloping trendline support zone. Moreover, the leading indicator RSI (14-period) is trading at ~62.07 level, indicating bullish momentum. Further, the prices are trading above the trend-following indicators 21-period and 50-period SMA, indicating positive momentum in the cryptocurrency.

4 hourly Chart

The momentum indicator MACD is trading in positive territory, indicating a bullish bias. Moreover, the prices are trading above the Parabolic SAR indicator, which may act as a crucial support level. Now the next resistance level appears to be at USD 1.52, and prices may test that level in the coming sessions (1-2 weeks).

Noted below are the key positives and negatives when looking at Cardano in the cryptocurrency space: -

Key Positives:

• Less Energy Intensive: Cardano works on a 2-layer system and the consensus is based on proof-of-stake system (POS) called as Oroboros. Unlike the proof-of-work system, Cardano’s proof-of-stake system avoids complex computational puzzles to verify transactions and enable validation of transactions based on coins that miners hold.
• Benefits of Hydra: The recent Alonzo upgrade made number of Cardano wallets to breach the 2 million-mark (Source: cointelegraph). Through Sharding and without portioning the ledger, the new Hydra layer can conduct up to 1 million transactions per second (Source: cointelegraph). However, Hydra is a proof-of-concept, and the launch date is unknown.
• Low Gas Fees: Due to the adoption of POS, Cardano offers nominal transaction fees with average cost of transaction is 0.1 ADA, translating to just couple of cents (Source: investingcube).

Key Negatives:

• Lack of Mass Appeal: Cardano is yet to gain mass reach as it is not fully developed. At present, it is developed through partnership with research academicians. Further, it has investors based out of Japan. The recent introduction of smart contracts feature is minuscule to the already well-developed Ethereum’s smart contracts.

Conclusion:

Based on the above-mentioned price action analysis and technical indicators outlook, ADA may witness movement in an upside direction. The trend looks to be in an interesting space and the currency looks ‘Attractive’ given the current price of USD 1.284 (as on January 13, 2022, at 12:45 AM, (GMT-5) Time in Eastern, KY, USA). However, volatility in the price should be borne in mind when looking at further evaluation for investment scenarios.

Investment Related Risks: Based on the technical analysis, the risks are defined as per risk-reward ratio (~0.80:1.00), however, returns are generated within 1-2 weeks’ time frame. This may be looked at by Investors with sufficient risk appetite looking for returns within a short investment duration. Insights provided in this report are solely based on technical parameters; however, there are other factors which could impact Cryptocurrency prices which include market risks, regulatory risks, interest rates risks, and social and political instability risks, etc.

Note 1: In general, an exit position can be considered if the Resistance Levels or Indicative Stop loss mentioned as per the technical analysis has been achieved. 

Note 2: How to Read the Chart?

The Green colour line reflects the 21-period simple moving average (SMA) while the red line indicates the 50-period SMA. SMA helps to identify existing price trends and if the prices trade above the 21-period and 50-period SMA, then in general it shows an uptrend trend.

The Black colour line in the chart’s lower segment is a 14-period Relative Strength Index (RSI) which indicates momentum in trend. A reading of 70 or above suggests overbought status, while a reading of 30 or below suggests an oversold status.

The Blue colour bars in the chart’s lower segment show the volume of the Cryptocurrency. The volume is the quantity that changed hands during the given period. Cryptocurrencies with high volumes are more liquid compared to lesser once and higher volumes help in easier and faster execution of the order.

The Orange colour lines are the trend lines drawn by connecting two or more price points and used for trend identification purposes. The trend line also acts as a line of support and resistance.

Technical Indicators Defined: -

Support: A level where-in the cryptocurrency prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the cryptocurrency prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the cryptocurrency prices.

Risk Reward Ratio: The risk reward ratio is the difference between an entry point to a stop loss and profit level. It is suggested to monitor the price carefully looking at ~80% Stop Loss of Resistance 1 from the entry point. 

A trailing stop-loss is a modification of stop-loss in case of favourable movement in the price to protect the gains. It is suggested to Trail the Stop-Loss as per the aforementioned levels if the Cryptocurrency price achieves more than 60% of the Resistance 1. Investors, in general, might consider exiting from the position as per the Trailing Stop-Loss level if the price starts moving downwards after achieving more than 60% of Resistance 1. However, these indications need further evaluation basis associated risks and any change in trends. 

The reference date for all price data, volume, technical indicators, support, and resistance levels is as of January 13, 2022, at 12:45 am, (GMT-5) Time in Eastern, KY, USA. 

Abbreviations

CMP: Current Market Price

SMA: Simple Moving Average

RSI: Relative Strength Index

USD: United States dollar 

Note: Trading decisions require a thorough analysis by investors. Technical reports in general chart out metrics that may be assessed by investors before any Cryptocurrency evaluation. The above are illustrative analytical factors used for evaluating the Cryptocurrency; other parameters can be looked at along with additional risks per se. Past performance is neither an indicator nor a guarantee of future performance.

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