Cardano’s native blockchain asset ADA hit a new high on Monday as investors pinned their hopes on an upcoming smart contracts feature that it hopes to boost cryptocurrency adoption.
The ADA/USD exchange rate peaked at $2,89 around 9:00 am UTC, raising expectations that it would easily close above $3 in the coming sessions.
Many analysts, including chartist pseudonym PostyXBT, pointed out that the Cardano token had entered a “price discovery mode.” Meanwhile, David Gokhshtein hinted that ADA/USD could continue its bull run until September 12, the day Cardano will integrate a smart contracts feature to its blockchain via the “Alonzo” update.
In detail, the Alonzo update introduces a native smart contract development language called Plutus into the Cardano ecosystem. Plutus is now available for testing and offers functional programming for creating smart contracts for everyday users.
As a result, ADA bulls anticipate that token adoption will increase in the coming sessions as Cardano attracts decentralized application developers, operating in the emerging sectors of decentralized finance and non-fungible tokens, to its smart contract ecosystem.
Overbought risks
But Cardano technical indicators predict a short-term shock, something that could cause the ADA/USD to correct down by as much as 40% despite maintaining its long-term bullish outlook.
Cardano’s token’s daily Relative Strength Index (RSI) has moved further into overbought territory, around 83. Traders consider an RSI reading above 70 to be overvalued. As a result, he asks them to sell the asset to ensure maximum profits.
For example, an increase in ADA/USD rates in the first quarter of 2021 pushed its RSI reading above 90. Later, the pair began to consolidate sideways while holding support near its 50-day exponential moving average (EMA 50 days; the scarlet wave).
The ADA price is now above 114% of month-to-date earnings and 1.511% of year-to-date earnings. At the same time, an oversold RSI represents an interim profit-taking scenario. So if the Q1/2021 fractal repeats, the next ADA support line is approaching its 50-day EMA at $1.73, almost 40% below current prices of $2.83.
But a correction will not necessarily exhaust Cardano’s long-term bullish outlook. Given the potential success of its Alonzo upgrade, the project could end up attracting more speculative offers on the upside for its ADA token. As a result, the ADA/USD exchange rate expects to remain in price discovery mode.
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