Cardano price has been an attractive investment since the pandemic crash in March 2020. ADA rallied a massive 17,600% in less than one and a half years and hit an all-time high of $3.11. This impressive rally has seen a massive slump since the fourth quarter of 2021 and shows no signs of stopping. This downswing, in particular, makes ADA one of the best altcoins to bet on for the next leg-up.
Technicals reveal an opportunity
ADA Perpetual Futures | Source: Tradingview
Cardano price was loyal to the $1 psychological level since it first tagged it on 9 February, 2021. Since this point, ADA has bounced off the said barrier roughly eight times, with the most recent retest on 3 February. Soon after, ADA sliced below the significant level and is currently hovering above the $0.843 level that could make or break Cardano.
The $0.843 support level is vital for multiple reasons, so a breakdown of this barrier could see ADA crash by 56% to $0.397 and is appropriately termed as “max pain scenario.” There are two primary reasons why such a steep and violent downtrend is to be expected.
- Fair Value Gap (FVG): This technical setup is formed when the price of an asset moves quickly away from a point, creating an inefficiency. Often, as the momentum dries up, the asset explores lower and fills this gap. For Cardano, this FVG extends from $0.365 to $0.746 and was formed as ADA rallied 224% between 28 January, 2021, and 9 February, 2021. Since this upswing, the Ethereum-killer has failed to fill this gap. Hence, a breakdown of $0.843 will be a catalyst that triggers market makers to push ADA to fill this gap.
- Volume Profile Gap: The volume profile indicator is used to identify the clusters or areas where the maximum volume of the trades occurred. These clusters or spikes often serve as critical support or resistance levels that help determine a potential pivot point.
For ADA, the 2021 to 2022 volume profile thins out considerably from $0.843 to $0.398. Interestingly, the FVG is a subset of this range and further supports the possibility of a massive crash to $0.398 if the $0.843 support level is breached.
Interested investors can start dollar-cost averaging their investment at the current level and leave some bids around $0.40.
ADA Perpetual Futures | Source: Tradingview
Supporting this outlook for ADA is the 365-day Market Value to Realized Value (MVRV) model. This indicator is used to identify the average profit/loss of investors that purchased ADA over the past year.
Currently, the 365-day MVRV is hovering around -50%, indicating a majority of the holders are at a loss. The last time this indicator dipped this low was in March 2020 due to the pandemic. As mentioned above, the pandemic crash served as a perfect opportunity to accumulate, leading to massive gains. Therefore, a repeat of this would indicate that Cardano will be an altcoin to pay close attention to.
MVRV Ratio | Source: Santiment
Assuming ADA retests $0.40, it would indicate that the downside threat is void and that a reversal is likely. A confirmation of the upswing or bull rally will arrive after ADA produces a higher high above the volume point of control at $1.238.
