Analyzing Cardano’s potential for price correction amid Djed stablecoin launch

• Cardano’s stablecoin will be launched next week.
• ADA will likely shed the gains it has recorded so far this year.

Cardano’s [ADA] native over-collateralized stablecoin, Djed will be launched “next week,” as per a 24 January blog post published by COTI, the layer-1 scalable enterprise network powering the coin. 

Realistic or not, here’s ADA’s market cap in BTC’s terms

According to the publication, following its launch in the coming days, the over-collateralized stablecoin and its reserve coin, SHEN, will be listed on the Singaporean cryptocurrency exchange, Bitrue. 

Due to its nature as an over-collateralized stablecoin, Djed will be backed by Cardano’s native coin ADA and reserve coin SHEN. 

Over-collateralized stablecoins are backed by assets that have a higher value than the stablecoin itself. This is in contrast to other types of stablecoins, such as those backed by a fiat currency or those that use algorithmic mechanisms to maintain their value.

There have been several instances of over-collateralized stablecoins that have failed in the past. One example is Basis Cash [BAC] owned by disgraced founder Do Kwon. It was a stablecoin project that raised $133 million in funding from venture capital firms. However, the project shut down in December 2018 after facing regulatory challenges over its backing.

Another example was Carbon [CUSD], an algorithmic stablecoin that was over-collateralized with Ethereum [ETH]. However, the project also shut down due to regulatory challenges.

ADA sees a pullback

Exchanging hands at $0.3564 per coin at press time, ADA’s price declined by 6% in the last 24 hours. After closing 2022 on a tumultuous note, ADA’s price rose by 40% since the year began, data from CoinMarketCap revealed. 

With waning buying pressure and increased profit-taking in the last few days, ADA’s on-balance volume (OBV) was spotted in a downtrend on a daily chart. As of this writing, the alt’s price was 43.44 billion, having dropped by 1% since 22 January.

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A steady fall in a crypto asset’s OBV is often taken as a bearish signal. It typically indicates that there is more selling pressure than buying pressure, culminating in a fall in an asset’s price. Since 22 January, ADA’s price has fallen by 5%.

An assessment of ADA’s Simple Moving Average (SMA) revealed a resurgence of a bearish trend in the market. At press time, the 50-day moving average was positioned below the 200-day moving average. This is generally a sign of a downward trend. 

Source: ADA/USDT on TradingView