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06/21/2024

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Will Cardano shorting activity serve as 'rocket fuel' for an explosive rally?

Cardano (ADA) has recently experienced a significant surge in short-selling activity, marking the highest shorting versus longing ratio since September 2023, according to Binance data. This increase in short...

Will Cardano shorting activity serve as 'rocket fuel' for an explosive rally?

Cardano (ADA) has recently experienced a significant surge in short-selling activity, marking the highest shorting versus longing ratio since September 2023, according to Binance data. This increase in short positions raises questions about whether this bearish sentiment could trigger a rebound rally for ADA.

According to data from Santiment on X (formerly Twitter), both Cardano and XRP (XRP) are experiencing significant shorting activity by traders following recent relief bounces. 

“Cardano and XRP are a couple of the most notable altcoins that are seeing heavy trader shorting following relief bounces. This is a good sign for patient bulls, as liquidate shorts can effectively act as ‘rocket fuel’ for continued price rises.”

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As of June 18, 2024, the Binance funding rate for ADA is -0.01374%, indicating strong bearish sentiment. A negative funding rate means short sellers are paying a premium to maintain their positions, reflecting high demand for short trades.

Such bearish sentiment can often precede a short squeeze, where short sellers are forced to buy back the asset, potentially driving up the price.

Long/Short ratios and market sentiment

Derivatives data from Coinglass shows that the long/short ratio for ADA is 0.9755. A ratio below 1 suggests more short positions than long positions, indicating bearish market sentiment. 

However, Binance‘s specific long/short ratio for ADA stands at 3, meaning there are significantly more long positions relative to shorts on this platform. 

This discrepancy highlights a divided market sentiment, with Binance traders being more bullish compared to the broader market.

Further supporting this, Santiment’s analysis identified 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 ADA could be extremely undervalued. 

🐂 The lower a cryptocurrency's 30-day MVRV is, the higher the likelihood we see a short-term bounce:

Bitcoin: -4.0% (Mild Bullish)
Ethereum: -4.3% (Mild Bullish)
XRP: -3.5% (Mild Bullish)
Dogecoin: -16.7% (Very Bullish)
Toncoin: -0.6% (Neutral)
Cardano: -12.6% (Very Bullish) pic.twitter.com/zHGg4t3qo1

— Santiment (@santimentfeed) June 19, 2024

The 30-day MVRV ratio was found to be -12.6%. A lower MVRV suggests that ADA is undervalued, indicating a higher 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 creating the groundwork for a substantial rally.

As short sellers cover their positions to minimize losses amidst a rebound, this buying pressure can escalate, potentially leading to a sharp price increase. Santiment‘s data echoes this sentiment, suggesting that heavy shorting on assets like ADA following relief bounces might provide the momentum needed for sustained price rises.

Market outlook and strategic developments

Cardano is currently trading at $0.39, with a one-day decrease of 2.9%. Crypto analyst Sssebi highlighted that the current downturn wasn’t unexpected and views it as an incredible opportunity for investors to accumulate more ADA.

ADA 7-day price chart. Source: Finbold

With ADA hitting $0.40, Sssebi suggests a further drop to $0.38 is possible if Bitcoin continues to decline. 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.

As I previously said, the dump wasn't over.$ADA just hit $0.40 and this is an incredible opportunity to load up your bags.
We could still see $0.38 if Bitcoin continues to dump, best way is to DCA at these prices.
Huge bounce incoming once this dump is over. https://t.co/q9raVYpHOu pic.twitter.com/hnpZNOENTM

— Sssebi🦁 (@Av_Sebastian) June 14, 2024

Moreover, Cardano recently outlined plans for a significant step towards full decentralization as part of the “Chang” hard fork upgrade.The convergence of high short selling activity and strategic developmental advances could indeed transform the current bearish momentum into a catalyst for a robust bullish rally in ADA’s market.

As these dynamics unfold, the crypto community and investors are closely watching, poised for potentially volatile market movements.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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