Cardano (ADA) has been making waves in the market lately, but some traders are starting to wonder whether its recent rally is really the start of a sustained upward trend—or just a short squeeze. As of February 20, 2025, ADA continues to hover below the $1 mark, a level that historically has signaled a potential breakout. However, there’s growing concern that this rally might not be as strong as it seems, and some signs are pointing to a possible bull trap.

Cardano’s Price Action: Stuck Below $1, But Is There Hope?

For some time now, Cardano has been stuck in a consolidation phase, consistently trading below $1. Recently, ADA’s price dipped below key support at $0.85, which caused a sharp 23% drop. But the silver lining is that the token seems to be finding some support around the $0.65 level. This range-bound movement has led to speculation that the market might be gearing up for a big move. That said, there’s a lot of resistance around $1, and it’s unclear whether the current rally has enough steam to break through.

Right now, Cardano is trading around $0.85. If it can reclaim that support level, it could open the door to a potential retest of the $0.95 mark. But with resistance so strong around $1, it’s going to take more than just a few bullish signs to push ADA higher.

The Bigger Market Recovery and Short Squeeze Risk

Cardano’s 4.45% rise in the past 24 hours is largely due to the broader crypto market recovery. With the total market cap inching closer to $3.20 trillion, it seems that the market is experiencing a bit of a bounce. ADA also saw a significant amount of short positions being liquidated—$871,000 worth, to be exact—which shows that some traders were caught off guard by the price movement.

However, despite the price increase, there are signs that the rally might not be as solid as it looks. Trading volume, which had surged to over $1 billion when ADA dipped to $0.65, has since dropped by 24.16%, falling to around $668 million. This decrease in volume is concerning because it suggests that the recent surge in price might not be driven by strong buying demand but instead by a short squeeze—a temporary event that could easily reverse once the pressure from short positions eases.

Fundamental Weakness and Liquidity Concerns

While there’s some upside momentum in Cardano’s price, the fundamental indicators are not as strong. The consolidation between $0.65 and $0.85 has fueled speculation that a breakout is coming, but the reality is that key metrics are showing a decline. For instance, smart money inflows, which had peaked in mid-January when ADA reached $1.15, have dropped off as the price has pulled back by 43%.

In the derivatives market, Open Interest (the total amount of outstanding contracts) has risen by 2.16%, which suggests that traders are positioning for a short-term move. But again, this could be more about liquidity than solid demand. The risk is that growing speculative interest, with low spot buying, could set the stage for a long squeeze—a situation where traders betting on higher prices are forced to sell, which could push the price lower.

What’s Next for Cardano Traders?

For traders, the current situation requires caution. While ADA’s price action between $0.65 and $0.85 has created hopes for a breakout, the likelihood of a bull trap is a real concern. If Cardano fails to maintain momentum and volume continues to decline, the price could dip back to the $0.65 level, which would signal a deeper pullback.

Traders should be especially careful of taking a “dip-buying” approach at these levels, as there is still a possibility that the market will see further downside. As always, it’s crucial to keep an eye on both the broader market and Cardano’s trading volume before making any big moves. The next few days could tell us whether Cardano is truly on a recovery path or just experiencing a temporary surge.