Let’s look at the reasons why Cardano has been trading lower recently.
Extended correction from overbought conditions
From the technical point of view, ADA’s ongoing correction is part of a corrective cycle that started in mid-December after ADA hit a 20-month high of $0.68.
Traders booked profits as ADA’s relative strength index (RSI) on daily charts became overbought after crossing 70.
An RSI reading above 70 means the asset is becoming overvalued and may undergo trend reversal or corrective pullback.
ADA is pursuing a correction pullback, confirmed by its downward movement inside a descending parallel channel.
The relative strength index (RSI) is positioned at 40, reflecting the market’s situation where the bears are in control.
Decreasing core developers and trading volume
ADA price drop since mid-December coincides with a modest drop in the token’s trading volume and the number of core developers, according to data from TokenTerminal.
Notably, the number of unique GitHub users that made more than one commits to the blockchain’s public GitHub repository on a daily basis reduced from a three-month high of 164 developers on Dec. 10, 2023, to 123 on Jan. 18. This represents a 25% decline.
Transaction volume was reduced by 87% from approximately $2.34 billion to $304 million over the same period.
Additional data from CoinMarketCap suggests that ADA’s daily trading volume has plummeted from approximately $1.165 billion on Dec. 10, 2023 to $381 million on Jan. 18.
The decline in trading volume and core developers coincide with ADA’s 27% price drop in the same period, hinting that these metrics have influenced ADA’s short-term price trends — and Jan. 19 is no different.
Related: Price analysis 1/15: SPX, DXY, BTC, ETH, BNB, SOL, XRP, ADA, AVAX, DOGE
The downturn in the broader crypto market
The entire crypto market is correcting from its peak when spot ETFs were approved and ADA seems to mirror the same pattern. Factors that may have boosted traders’ selling include the reducing Crypto Fear and Greed index and spot Bitcoin ETF-driven selling.
Notably, Bitcoin has experienced substantial selling pressure recently, with the BTC price crashing to $40,000 on Jan. 12. This has been attributed to large outflows from the Grayscale Bitcoin Trust (GBTC), which is possibly a reflection of investors choosing to move into the Bitcoin ETFs with lower fees. The entire crypto market dropped as Bitcoin dropped, with major altcoins like ADA falling in tandem.
The Crypto Fear and Greed index slid from the “greed” zone last week to “neutral” on Jan. 19.
Declining bullish market sentiment could be responsible for the current market-wide correction. The “neutral” value means market participants are treading with caution as they wait to see the direction the market will take in the short term.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.