Cardano (ADA), a prominent cryptocurrency in the market, recently experienced a notable 10% price jump within a single day. This surge brought an additional $1 billion to Cardano’s market capitalization, lifting ADA’s price to around $0.362. Many investors view this as a promising signal amid a broader market recovery, while others are curious about what this could mean for Cardano’s future trajectory.

The recent rally created a significant squeeze for short-sellers, who were caught off guard by the sudden price reversal. Now, many traders are asking whether Cardano’s momentum will continue and if it’s time to consider a more bullish outlook.

Short Sellers Face Big Losses as Cardano Gains

Cardano’s rapid price increase has led to what’s known as a “short squeeze,” a situation where traders betting on ADA’s price decline (short sellers) are compelled to close their positions by buying back ADA at a higher price. This rush to cover short positions often drives the price up further. According to data from Coinglass, close to $868,000 in ADA open positions were liquidated during this rally, with short liquidations accounting for a substantial $608,000.

This level of short liquidation is a sign that many traders expected ADA to continue its downtrend, only to be surprised by the price spike. As short positions are closed and long positions increase, there’s added upward pressure on ADA’s price. This shift from bearish to bullish sentiment suggests that ADA’s value could be on an upward path if buying continues to strengthen.

Bullish Patterns Signal Potential for Further Growth

Adding to the excitement around ADA’s rally is a technical pattern that has emerged on its daily chart: the “double-bottom” pattern. This pattern, commonly viewed as an indicator of a potential bullish trend, appears when an asset touches a low level twice, with a moderate rebound in between. In ADA’s case, this pattern indicates a strong support level, suggesting that Cardano could be ready to gain more ground if this support holds.

ADA’s next significant resistance level is around $0.404. If Cardano’s price surpasses this level, it could lead to additional buying and further upward movement. The on-balance volume (OBV) indicator, which tracks trading volume based on buying and selling pressure, is also trending upward. This rise in OBV hints that buying interest is building along with the price increase, indicating positive momentum for Cardano in the near term.

Growing Optimism in the Derivatives Market

Positive signals are also emerging from Cardano’s derivatives market, where funding rates have spiked, indicating higher demand for long positions. Funding rates, which measure the cost of holding long positions in futures contracts, have increased from 0.0008% to 0.0093%. This growth suggests that more traders are confident about ADA’s potential to maintain its upward trend.

When funding rates rise, it usually points to a larger number of traders opening long positions, reflecting a generally optimistic view about an asset’s performance. This development aligns well with the broader buying interest Cardano is currently experiencing and the recent technical patterns that support a bullish outlook.

A Closer Look at the MVRV Ratio

Despite these positive signs, some cautionary indicators remain. Cardano’s Market Value to Realized Value (MVRV) ratio—a metric comparing ADA’s market price to its average purchase cost—recently dropped from 0.723 to 0.661. A lower MVRV ratio generally implies that ADA may be undervalued, potentially attracting buyers who see it as a bargain.

However, a rapid drop in the MVRV ratio could also mean that some investors are uncertain about the rally’s sustainability. As the MVRV ratio falls, it suggests that buyers are becoming less confident in ADA’s continued rise. For the rally to continue, it may need support from sustained buying interest and broader market optimism.

Market Sentiment and ADA’s Future

While Cardano’s recent increase has undoubtedly been promising, ADA’s future will likely depend on the broader cryptocurrency market. If the overall market maintains its recovery, ADA could continue its upward path, bringing in more investor interest. Cardano’s market cap now sits at approximately $12.7 billion, positioning it among the top crypto assets. This added exposure may attract both retail and institutional investors, adding to ADA’s potential for further gains.

However, cryptocurrency markets remain highly volatile, and ADA’s recent gains could be influenced by shifts in overall market sentiment. Any significant changes in the broader market could impact ADA’s performance. To stay informed, investors should closely monitor trends affecting Cardano as well as general cryptocurrency developments that may influence ADA’s value.

What Should ADA Investors Consider?

With multiple indicators pointing toward a positive trend, Cardano seems to have a solid foundation for further growth. The double-bottom pattern, increased interest in the derivatives market, and rising buying pressure all support the possibility of ADA climbing higher in the short term. However, it’s essential to remember that ADA, like other cryptocurrencies, is sensitive to market changes and investor sentiment.

For investors considering holding or expanding their ADA holdings, keeping an eye on both ADA-specific developments and broader market movements is crucial. By staying informed and monitoring key indicators, investors may be better positioned to take advantage of any potential gains, though cautious risk management is advised.