Cardano Price Analysis — The intellectual’s blockchain

Brookins, Das , 06 Jul 2018 - AdaCardanoPrice Analysis

Cardano (ADA) has remained top-of-mind for many crypto investors despite a challenging first half of 2018. By the end of Q3 this year, it promises to be the first digital asset to deliver a truly decentralized Proof-of-Stake consensus algorithm, and with other unique features aims to challenge Ethereum's dominance of the smart contract hosting ecosystem.

Cardano (ADA) is a smart contract and Dapp hosting platform that offers blockchain solutions comparable to platforms like Ethereum, EOS and NEO. It has, and is being built, with security, scalability and layered architecture in mind.

On the back of announcements about  key updates to its product roadmap and founder Charles Hoskinson promoting the network at events in Japan and London recently, the value of ADA has risen by 29.76% since the 29th of June.  

Ran Neuner, founder of ONchain Capital and host of CNBC's Cryptotrader, speaking on CNBC’s Fast Money, stated that infrastructure was the key factor when looking for crypto investments in the bear market. He backed Cardano as one of two blockchain projects to watch based on that criteria. This mainstream endorsement may also have impacted ADA’s positive price movement in the last week.

 BNC ADA 7 Day Index 060718

Cardano back in the public’s eye

 Appealing to research-oriented crypto enthusiasts and driven by academics still working in universities, ADA has a built a reputation as the thinking man’s coin of choice —  with all updates to the network going through a ‘peer review’ process before being implemented.

From an initial listing price of $0.02277 on October 1st 2017, ADA currently trades at 0.14923, a 555.38% return for early investors.

Trading pairs and exchanges

 Cardano Pairs

 Currently, the most popular trading pair for Cardano is the fiat to crypto ADA/Korean Won option. This is followed by two crypto-to-crypto options in ADA/Tether and ADA/Bitcoin. The popularity of the ADA/Indonesian Rupiah pair is noteworthy, having close to a million US dollars worth of daily volume. For industrious investors, Binance offers another stablecoin option with a recently added BNB/ADA pairing.

 KRWADA

The popularity of the Korean Won pairing is driven by listings on Upbit and Bithumb. Upbit sets a 0.25% fee for transactions but does not charge any deposit or withdrawal fees. For crypto-to-crypto offerings, Binance, a top three exchange by daily trading volume, handles over 60% and 80% of transaction volumes for ADA/USDT and ADA/BTC respectively.

Setting trends for consensus protocol

Cardano is one of the original implementers of Proof-of-stake (PoS) algorithms, with its Ouroboros Consensus model. Network designers choose to step away from the often used Proof-of-work (PoW) algorithm because of the energy efficiency and transaction speed advantages offered by PoS.

With PoW a network becomes increasingly energy and processing intensive as more miners join the network, meaning it creates a scaling issue for blockchains using it. The more nodes there are in a PoW Blockchain, the more difficult it is to become the select one that produces a block.

With PoS, node selection becomes immediately more streamlined. Nodes are selected proportional to how many tokens a potential block producer has in its wallet. This is done by a process of ‘fair lottery’, where anyone with a positive stake in the network has a chance to be selected as a slot leader (block miner), however stakeholders with larger investments in the network are weighted more favourably.

There is a key risk/reward balance system here where users who hold more tokens have a higher likelihood of receiving greater mining rewards, but are more exposed to risk when the value of ADA falls. Additionally, PoS provides a built in mechanism to protect against 51% attacks because any hacker would need to accumulate a large chunk of tokens to carry one out. Thereby when attacking the network and subsequently depreciating the value of the blockchain’s token, they would also be harming themselves.

The biggest knock against the PoS model is the possibility of Cartels forming within a network. Potential miners, if they choose to, could accumulate large sums of ADA and dominate governance on the network by gaming the block producer voting system.

Additionally, Cardano will allow for staking pools, which will let groups of users pool their tokens together in order to increase their likelihood of being selected as slot leaders and share rewards. This could exasperate cartel formation.

Along with the issue of Cartels being able to hoard mining rewards, slot leaders decide which blocks will be published on the network. Meaning that if they choose to, Cartels can favour projects (Dapps or ICOs) according to their liking, determining the nature of the ecosystem, and causing Cardano to lose its proposed decentralization.

Charles Hoskinson, the leader of Cardano has acknowledged this issue and has discussed the importance of balancing incentives for miners within Cardano’s ecosystem. Instigating participation, but not promoting cartels. This is why the success of Cardano’s next key update, ‘Shelley’, is essential, because it will be a first step towards Cardano becoming truly decentralized.

Shelley: Cardano breaks new ground

Cardano’s blockchain is currently only operating with nodes, either under the control of central leadership, or selected by central leadership. With the Shelley update, due in Q3 this year, Cardano will begin to open the network to publicly managed nodes, and become a true PoS blockchain.

Its current governance more resembles Delegated Proof of stake, similar in style to a blockchain like EOS. With Shelley, nodes will now become anonymous, eliminating any suspicion of favouritism towards projects on the network, or projects on the network targeting nodes based on their perceived preferences.  

This  adds far more ideological appeal to the blockchain. It should attract potential smart contract users to the network, who seek something between the democracy of Ethereum, and the efficiency of EOS. However, the network upgrade will be a challenge, and Cardano will have to ensure incentives for nodes are managed in a manner that retains the blockchain’s integrity.

Protective layers

Another key feature of Cardano is that key network operations are enacted on separate sidechains. The first chain is the Cardano settlement layer (CSL). The CSL chain manages accounting and transactional operation of ADA for the Cardano ecosystem, while the Cardano Computational Layer (CCL), supports smart contracts and Decentralized application (Dapp) hosting.

There are a number of advantages of this kind of side chain system. It simplifies privacy and network interactions because smart contract information is kept separate from transaction information. If X is sending money to Y, does a node also need to know who X and Y are and the purpose of the transaction? Cardano believes they don’t, and as such maintains simplicity by separating operations within the ecosystem.

But Cardano’s approach may not be universally superior. Ethereum for example, bundles accounting and smart contract information together and thereby has an advantage in that there are additional checkposts for fraudulent activity because more data is retained by network miners.

Cardano has recently announced updates to Marlowe — another key network feature named after a major literary figure, which is a unique quirk of Cardano’s naming protocol. Marlowe will be a Financial Domain Specific Language (DSL), and will allow for fluid execution of finance-specific smart contracts. It will be embedded into Haskell and contracts will be layered on top of key accounting information of businesses.

There’s more, Novel Virtual Machines and Crypto wallet solutions

At the end of July Cardano will be launching testnets for two new virtual machines, based on the K programming language, called KEVM and IELE. Both are based on Ethereum’s virtual machine (EVM), and as such will require some Solidity coding experience to be able to use.

It is hoped that the VM’s will add to the Cardano ecosystem by first giving Ethereum developers an opportunity to work with an ecosystem that separates transactional information from smart contract data. And second, to trial the potential backwards compatibility of other languages into Cardano, creating new opportunities for a host of new potential Dapp developers.

Cardano has also launched a crypto wallet called Daedalus, which is currently the only way to store and transact ADA (integrates with third party exchanges). It lets a single user manage multiple wallets and is deterministic. Daedalus is known for having strong UX & customer support, and is secured with Cardano’s robust Haskell programming language.

Technical analysis

Despite benefiting from positive PR and marketing as of late ADA has suffered mightily during the current bear market; down ~89% from its all-time high.

Exponential Moving Averages (EMA) with Long Term Trends

On the daily chart, the bullish EMA cross, or Golden Cross, has not occured which confirms ADA’s negative price trend. Additionally, using the 4 hour chart, the volume flow indicator (VFI) recently retested 0 and failed, which may indicate stalling buying volume (not shown). The VFI interpretation is a value above 0 is bullish and below 0 is bearish, with divergences between price and oscillator being high probability signals.

 ADA TA1

Ichimoku Clouds with Slow Wave Trend Oscillator (SWTO)

The Ichimoku Cloud uses four metrics to determine if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, Lagging Span (Chikou), and Senkou Span (A & B).

The status of the current Cloud metrics on the daily time frame with singled settings (10/30/60/30) for quicker signals is bearish; price is below the Cloud, Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and price.

A traditional long entry would occur with a price break above the Cloud, known as a Kumo breakout, with price holding above the Cloud. From there, the trader would use either the Tenkan, Kijun, or Senkou A as their trailing stop.

ADA is currently sitting at ~$0.15 which has acted as support in the past, but is currently a resistance level. The SWTO is currently bouncing off oversold levels (orange arrow), which may offer the needed boost to breakthrough resistance and re-attempt a Kumo breakout. If successful, short term price targets are ~$0.30 (Senkou B) and ~$0.40 (prior Kumo breakout resistance fail). The support levels to watch on the downside are $0.12, $0.10, and ~$0.08 (critical to hold).

 ADA TA2

The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals is bearish; price is below the Cloud, Cloud is bearish, TK cross is bearish, and the Lagging Span is below Cloud and price.

Again, ADA is sitting at ~$0.15 which is currently a resistance level, while the SWTO is offering a boost to re-test a Kumo breakout above $0.25. If successful, short term price targets are ~$0.30 (Senkou B) and ~$0.40 (prior Kumo breakout resistance fail).

 ADA TA3

Conclusions

As a potential rival to Ethereum, EOS and NEO in the smart contract and Dapp hosting fields Cardano is one of the most ambitious and revolutionary projects in crypto. It has regained popularity in the last few weeks with some strong PR and promises of upgrades to the network on the horizon. Cardano watchers should look for a successfully implement of its decentralization protocol to maintain this momentum.

The technicals for ADA are firmly bearish. Both, the prudent short term trader (10/30/60/30 settings) and longer term trader (20/60/120/30 settings) will await a positive TK cross and Kumo breakout above ~$0.25 before entering a long position. The key support levels for these traders are $0.12, $0.10, and ~$0.08 (critical to hold), while the price targets are $0.30 and $0.40. Bottom fishing traders may view ADA’s recent PR-driven price bounce and relatively decent support levels between $0.15 and $0.10 as sufficient to begin accumulating a long position at a lower cost average, but should use appropriate stops and position sizes to mitigate mis-timing and downside risk.

Disclaimer: This analysis has been designed for informational and educational purposes only. Readers are advised to conduct their own independent research into individual assets before making a purchase decision.

About the authors

BNC Christopher Brookins headshot pic4Christopher Brookins
Christopher Brookins is the founder and CEO of Pugilist Ventures, a quantitative investment firm focused on digital assets and blockchain technology. Chris has a deep knowledge and unique perspective on digital assets formed by his polymath experience in equity trading, credit investing, and business development at two West Coast startups (one acquired). He has been involved in the blockchain community since 2014. 

 

Aditya Author Profile

Aditya Das
Aditya Das is Brave New Coin's in-house market analyst. Raised in Dubai, UAE, he holds a post-graduate honors degree in Economics from the University of Auckland and a BA in Economics from the University of Sussex. Prior to joining BNC his most recent roles were as a researcher and Economics tutor at the University of Auckland.