I Hate to Say It But Here’s Why Cardano Could Fall 25%

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It would be one thing if Ethereum (CCC:ETH-USD) and Bitcoin (CCC:BTC-USD) were pushing higher. Or imagine if growth stocks were on the rise, ripping up to new all-time highs. 

Then you could make a case for owning some of the smaller cryptocurrencies. 

While the crypto space isn’t quite as bad as growth stocks at the moment, there are still some pressing concerns here. That’s particularly true for the smaller coins. With a market capitalization of $46 billion, it’s hard to call Cardano “smaller.” 

However it’s not one of the 800-pound gorillas in the room. 

Trading Cardano 

When I look at the chart for Cardano, the first thing that jumps is the trend. The value of this coin has been plunging since August, when it hit a new all-time high just north of $3. 

Take a moment and notice how Cardano did that with bearish divergence on the relative strength index (RSI) reading at the bottom of the chart (blue arrow). 

Since then, the coin has continued to put in a series of lower highs as traders continue to sell the rallies. The stock has lost almost two-thirds of its value since then. 

In December, I wrote about my concern for Cardano, as it was forming what many refer to as a descending triangle. That’s when we have a clear downtrend squeezing the asset price against a static level of support. 

In this scenario, that static level of support was $1.20. 

Click to EnlargeSource: Chart courtesy of TrendSpider

This level went on to fail as support earlier this month, with Cardano falling to $1.065. Perhaps that decline was enough and that’s the end of it. However, there are still some issues even though it has — at least for now — reclaimed the $1.36 level. 

Now the issue is the 50-day. It was resistance in late December and it’s acting as resistance now. So are a handful of other key moving averages and the daily volume weighted average price (VWAP) measure. 

If Cardano can break out over all of these marks, it puts the 10-month moving average in play and the $1.50 mark. 

If it breaks back below $1.20, the recent low ($1.065) is back in play, followed by $1. The latter level has been stout support for more than a year now. 

If we do see the $1 mark, it represents a loss of roughly 25% from current levels. 

Cardano’s Long-Term Potential

I believe in the long-term potential for digital currencies. As the world continues to evolve, it’s only natural that payments and currencies do too. 

That’s how we got to credit card companies like Visa (NYSE:V) and MasterCard (NYSE:MA). It’s why we continue to move to credit and debit from cash and check. It’s why there’s Square (NYSE:SQ), Stripe, Cash App and more. 

So cryptocurrencies are like here to stay — but not all of them.

When you look at a list of cryptocurrencies you have to ask yourself, “What are most of these even doing here?” 

The list goes on and on of mostly obscure — and quite frankly — worthless coins. I can see a future with Ethereum because of its multiple real-world applications. It’s easy to imagine Bitcoin as well, given that it’s the largest cryptocurrency in the world and is on some corporate balance sheets. 

As for Cardano though, I personally consider it a bit more speculative. On the plus side, it does have a solid foundation. 

One of the former Ethereum founders is behind Cardano, that being Charles Hoskinson. Like Ethereum 2.0, Cardano is a proof-of-stake cryptocurrency. According to Cardano the coin is “provably secure against bad actors and Sybil attacks.”

However, Cardano’s bigger problem is recognition. 

Notice how it didn’t make new all-time highs with the big boys — Ether and Bitcoin — in November. It doesn’t get the meme treatment like Dogecoin (CCC:DOGE-USD) and Shiba Inu (CCC:SHIB-USD). 

I think that may be its biggest risk over the long term. 

On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.