Cardano price gains 88% — Is the ADA rally just getting started?

As a seasoned researcher with a decade-long experience in the dynamic world of cryptocurrencies, I find the recent surge of Cardano (ADA) to be quite intriguing. The 88.8% jump within just 15 days, reaching its highest price in nearly three years, is reminiscent of the rollercoaster ride that is crypto trading.

Cardano (ADA) surged by 88.8% between Nov. 18 and Dec. 3, reaching its highest price in nearly three years at $1.33. This rally mirrored broader gains in the altcoin market, which reached a peak of $1.52 trillion on Dec. 3, up from $1.16 trillion on Nov. 18.

During the past 15 days, the ADA rally coincided with a record peak in leveraged trades using futures contracts, causing some traders to ponder if the drop to $1.16 on December 3 could be a good buying chance and to assess the possible risk of consecutive liquidations due to potential cascading effects.

During a 15-day stretch ending December 3rd, Cardano, Stellar (XLM), XRP, Algorand (ALGO), and IOTA were among the top-performing cryptocurrencies within the broader group of 100 digital assets. This surge in performance has been labeled by some analysts as the “dinosaur coin rally,” reflecting that these altcoins have previously experienced at least two cycles of growth followed by decline.

One notable aspect of Cardano, beyond its significant price rise, is the substantial jump in ADA open interest on derivative trading platforms by 37%, surpassing the high point from October 2022. As of December 3rd, the combined exposure of both long and short positions (buyers and sellers) amounted to approximately 932.5 million ADA, which equates to around $1.2 billion.

Compared to other cryptocurrencies, BNB‘s total futures contracts held open has reached $1.08 billion, even though its market capitalization is over double that of Cardano. Notably, the open interest for altcoins such as Solana (SOL), Dogecoin (DOGE), and Avalanche (AVAX) still falls short of their highest-ever recorded values.

ADA futures reflect modest optimism and low liquidation risks

Interpreting the increase in ADA futures requests doesn’t necessarily mean a bullish or bearish outlook, since each contract comes with opposite trades on its flip side. To understand traders’ perspective, it’s more informative to observe the premium (or basis rate) of monthly futures contracts. In thriving markets, annualized premiums between 5% and 10% are usually observed.

Monthly futures agreements for Cardano (ADA) are currently trading at a solid 17% higher than the current spot price, which mirrors patterns seen in past bull markets and is not surprising. During times of heightened optimism, traders might pay as much as 60% per year for leverage, an expensive cost that long-term investors should be aware of.

It is also important to consider the perpetual contracts. In these cases, exchanges charge either longs or shorts a fee for excessive leverage to balance risk. Given that crypto traders are typically bullish, a monthly fee ranging from 0.5% to 2.1% is generally charged to longs.

On December 2nd and 3rd, the monthly funding rate for ADA perpetual futures reached a high of 6%, but it has since dropped to 2.2%. This indicates that traders may have overused leverage during a brief timeframe, followed by reinvesting more capital to manage their risk.

To round off, it’s crucial to take into account the Total Value Locked (TVL) within the Cardano network, since growing interest in using the network for smart contract processing significantly contributes to the long-term appeal of ADA.

Despite being a minor contender in the decentralized applications (DApp) landscape, Cardano currently manages approximately $685 million in deposits. On the other hand, Aptos boasts $1.23 billion and Avalanche holds an impressive $1.53 billion in Total Value Locked (TVL). Worth noting is that there’s been no increase in Cardano’s TVL over the recent months.

Based on the current funding rate and futures premium, it seems that the rise in ADA futures demand isn’t the main factor driving the price spike. Consequently, at this moment, there appears to be no imminent danger of a chain reaction of forced liquidations.

In other words, this post serves as a source of general knowledge and shouldn’t be perceived as legal or financial guidance. The perspectives, ideas, and viewpoints shared within this article belong solely to the author and may not align with those held by CryptoMoon.

2024-12-03 23:08

ADA futures reflect modest optimism and low liquidation risks

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