Cardano (ADA) has recently shown some positive momentum, climbing from $0.30 to $0.36. Despite this short-term surge, there are significant risks that could drive Cardano’s price down to $0.20. Here’s a closer look at the three main factors contributing to this potential downturn.

1. Surging Transactions Per Second (TPS) with Falling Usage

Cardano’s blockchain has been capable of processing more transactions per second (TPS), yet this increased capacity hasn’t translated into higher transaction volumes. According to data from C explorer, while TPS has risen, the actual transaction count has dropped. This anomaly suggests that while the network can handle more transactions, user engagement is waning.

The gap between increased TPS and reduced transaction count indicates a decline in network activity. This reduced activity could be due to market conditions, investor sentiment, or other external factors affecting Cardano’s adoption. When a blockchain’s infrastructure grows but user activity does not, it can signal a weakening interest in the network, which could negatively impact ADA’s price.

2. Declining Total Value Locked (TVL)

Total Value Locked (TVL) is a crucial metric that shows the amount of capital held in a blockchain’s smart contracts. Cardano’s TVL peaked at $490 million in March 2024, but it has since plummeted to $181 million by August. This drop reflects a significant outflow of capital from the Cardano ecosystem.

The initial rise in TVL during early 2024 might have been fueled by excitement around new developments, such as the Bitcoin ETF approval. However, as the market corrected, Cardano struggled to maintain its user base and investment levels. A declining TVL suggests that investors are pulling their funds out of the ecosystem, which could contribute to a lower ADA price.

3. Falling Daily Active Users Despite Growing Network Capacity

Cardano has increased its network capacity in 2024, indicating that it can accommodate a larger number of users. However, the number of daily active users has been dropping, even with this increased capacity. This trend highlights a disconnect between the network’s ability to scale and actual demand for its services.

The growing network capacity (red line) contrasts with the decreasing actual usage (green line), pointing to a reduced need for Cardano’s services. This mismatch could mean that the network’s infrastructure improvements are not translating into higher adoption or demand, putting downward pressure on ADA’s price.

Technical Indicators and Future Outlook

The technical outlook for ADA also reinforces the bearish sentiment. Since March 2024, Cardano’s price has been on a downward trajectory, remaining below the 21-day exponential moving average. This positioning indicates a prevailing bearish trend.

A critical resistance level has formed due to a strong downward trendline. If Cardano’s price fails to break above this trendline, it could face a drop of around 32% to $0.20. This scenario aligns with the bearish reversal pattern observed in the weekly chart, further suggesting potential declines.

On the other hand, if Cardano manages to break through the trendline resistance, it could signal a reversal of the current downtrend. Such a move might push ADA’s price back towards $0.50, where the next significant resistance lies. Breaking this resistance could even propel ADA to $0.70.

Conclusion

While Cardano has shown some positive price movements recently, underlying issues like decreasing network activity, a falling TVL, and a drop in daily active users pose serious risks. These factors, combined with bearish technical indicators, suggest that ADA might face a decline to $0.20 if current trends continue. However, breaking key resistance levels could offer a more optimistic outlook for the cryptocurrency.