Is Cardano Providing an Early Warning for Crypto Investors?

If cryptocurrencies took a page out of baseball proceedings and handed out annual MVP awards to individual digital assets, Cardano (CCC:ADA-USD) would certainly be a top contender for 2021.

A concept coin for Cardano (ADA).

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While Bitcoin (CCC:BTC-USD) naturally draws headlines for being the benchmark, ADA is one of the superstars in terms of performance. At the start of this year, Cardano was priced at just over 18 cents. Currently, it’s trading at $2.14, meaning visionary contrarians received nearly 12X returns for their trouble.

Again, Bitcoin is no slouch, more than doubling from where it began the year just below $29,000. Anybody would take 2X returns in a 10-month period. But it pales in comparison to a 12X profit, so the fictional MVP might go to Cardano. However, its recent laggardness poses some serious questions.

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Generally speaking, cryptos move in sympathy with each other. Because the sector is still arguably in the early phases, individual coins and tokens don’t appear to trade on their own fundamentals. Instead, when Bitcoin moves, so do the rest of the altcoins.

Therefore, it’s difficult not to get concerned about Cardano’s consolidation pattern, which has been in place since around Sept. 20. Keep in mind that Bitcoin started exploding higher on Sept. 29. You’d think that with the benchmark inking yet another all-time high, some of that sentiment would spill over into ADA. Yet, it’s stuck in neutral.

Cardano May Be Flashing a Warning Signal

One analyst recently wrote, “The overall underperformance of Cardano is likely because investors are waiting for the first applications that are built on the network. This is because the network recently launched its smart contracts features. Analysts believe that developer and user adoption of these features will be crucial to the survival of Cardano and its ecosystem. While many developers have started using it, there is a possibility that its adoption will lag because of the rising competition in the industry.”

On the surface, the explanation seems to make sense. Cardano is pioneering practical applications regarding proof-of-stake protocols. This, in short, is a more energy-efficient process of mining tokens. However, blockchain technology as a broader concept isn’t proprietary. Further, it’s not entirely clear if it will be useful beyond crypto-specific applications.

Over the years, myriad contrarians have pointed out that blockchain technology is overhyped and overrated. As an alternative to business protocols, I would have to agree. Imagine if every decision had to go through a consensus protocol — it would be utterly chaotic. That’s why corporations hire project managers to act as effecient decision-makers.

Plus, you now have over 13,000 digital assets, per data from CoinMarketCap. That’s a lot of competition for Cardano, which goes back to the analyst’s point. However, I find it difficult to believe that Cardano’s blockchain was the key reason for investors piling into ADA in light of so many other blockchain options.

Instead, I think the masses rushed in because ADA was “cheap” and had brand recognition and, therefore, implied (relative) stability. Now that Cardano has run up more than 1,000%, investors are probably performing a risk-reward analysis under the current paradigm.

Do or Die for Cryptos

Could Cardano go up another 1,000% from here? That would imply a market capitalization greater than Ethereum (CCC:ETH-USD), which seems unlikely. Thus, the potential benefit of putting money at risk may no longer be worthwhile for speculators.

Currently, I’m watching Bitcoin gyrate wildly, but the bulls are keeping BTC above the $60,000 level. The bullish action in BTC and lack thereof in ADA might suggest the latter is trying to tell us something.

At $30,000, the risk of buying Bitcoin was, in hindsight, an acceptable one. Right now, we’re testing whether $60,000-plus offers the same risk-reward profile. To achieve the same percentage-basis move, Bitcoin would obviously need to hit $120,000.

Is that achievable? Perhaps. But as the stakes rise, so too does the prospect of incurring serious pain. That’s why I think Cardano is struggling. And it’s not out of the realm of possibility that BTC may likewise endure challenges in the near future.

On the date of publication, Josh Enomoto held a long position in ADA, BTC and ETH. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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