Could the shorting activity on Cardano potentially fuel an explosive rally
Cardano (ADA) has witnessed a notable surge in short-selling activity, reaching its highest ratio of shorting versus longing since September 2023, according to data from Binance. This increase in short positions raises questions about whether this bearish sentiment could trigger a rebound rally for ADA.
According to Santiment’s data on X (formerly Twitter), both Cardano and XRP (XRP) are experiencing significant shorting activity by traders following recent relief bounces. This is seen as a positive sign for patient bulls, as liquidated shorts can act as “rocket fuel” for continued price rises.
As of June 18, 2024, the Binance funding rate for ADA is -0.01374%, indicating strong bearish sentiment. A negative funding rate means that short sellers are paying a premium to maintain their positions, reflecting high demand for short trades. This bearish sentiment often precedes a short squeeze, where short sellers are forced to buy back the asset, potentially driving up the price.
Derivatives data from Coinglass shows that the long/short ratio for ADA is 0.9755, suggesting more short positions than long positions and indicating bearish market sentiment. However, Binance’s specific long/short ratio for ADA stands at 3, indicating significantly more long positions relative to shorts on this platform. This difference highlights a divided market sentiment, with Binance traders being more bullish compared to the broader market.
Santiment’s analysis further supports this by identifying ADA and XRP as potentially undervalued. The Market Value to Realized Value (MVRV) ratio, which compares the market capitalization of an asset to the total realized value of all its coins in circulation, indicates that ADA could be extremely undervalued. A lower MVRV suggests that ADA is undervalued and increases the likelihood of a short-term bounce. Historically, cryptocurrencies with low MVRV ratios tend to experience price recoveries.
Heavy shorting following market bounces can serve as a precursor to bullish activity. In the context of ADA, the recent surge in short selling might be laying the groundwork for a substantial rally. As short sellers cover their positions to minimize losses during a rebound, this buying pressure can escalate, potentially leading to a sharp price increase. Santiment’s data supports this sentiment, suggesting that heavy shorting on assets like ADA following relief bounces might provide the momentum needed for sustained price rises.
Cardano is currently trading at $0.39, with a one-day decrease of 2.9%. Crypto analyst Sssebi views the current downturn as an opportunity for investors to accumulate more ADA. If Bitcoin continues to decline, Sssebi suggests a further drop to $0.38 is possible. The best approach, according to Sssebi, is to employ dollar-cost averaging (DCA) at these prices, anticipating a significant bounce once the current dip is over.
Furthermore, Cardano recently revealed plans for a significant step towards full decentralization through the “Chang” hard fork upgrade. The convergence of high short-selling activity and strategic developmental advances could potentially transform the current bearish momentum into a catalyst for a robust bullish rally in ADA’s market. The crypto community and investors are closely watching these dynamics, prepared for potentially volatile market movements.
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