Home Altcoins News Cardano’s Funding Rates Hit Yearly Low: What This Means for ADA’s Future

Cardano’s Funding Rates Hit Yearly Low: What This Means for ADA’s Future

Cardano future

The cryptocurrency market has been hit with significant volatility in early February 2025, and Cardano (ADA) is feeling the effects. On February 3, ADA experienced a dramatic price drop of 24%, reaching $0.67. This sharp decline has resulted in some concerning market indicators, including a notable drop in funding rates—hitting their lowest level in over a year. But what does this all mean for ADA and its future?

What Are Funding Rates and Why Do They Matter?

Funding rates are a key indicator in the cryptocurrency market, particularly when it comes to the balance of long and short positions. In simple terms, they reflect the cost of holding a leveraged position in the futures market. A negative funding rate, like the one seen with Cardano at -49%, suggests that more traders are betting against the asset (short positions) than those betting on its rise (long positions).

This drop indicates growing bearish sentiment toward ADA, as traders expect further declines. When funding rates are this low, it can sometimes signal that the market has overextended on the short side, which could potentially lead to a “short squeeze” if prices unexpectedly reverse.

Cardano’s Price Struggles Amid Market Downturn

On the same day that Cardano’s funding rates plummeted, the broader cryptocurrency market also faced a massive setback. On February 3, the market capitalization of the entire crypto space fell by 10%, creating a bearish environment for many assets, including Cardano.

ADA was one of the hardest-hit cryptocurrencies, with its value sinking by 24%. This brought the price down to $0.67, a level not seen in almost three months. The sharp decline in price led to over $31 million in long positions being liquidated—marking the second-highest level of liquidations for ADA in the past year. As these positions were forcibly closed, it caused an influx of selling activity, which put additional downward pressure on the price.

Why Is Cardano Facing These Struggles?

Several factors are contributing to Cardano’s current struggles. The dramatic drop in funding rates signals that traders are increasingly pessimistic about ADA’s near-term prospects. On top of that, there is reduced decentralized finance (DeFi) activity on the Cardano network, which may be contributing to its downturn.

Recent data from DeFiLlama shows that the Total Value Locked (TVL) on the Cardano network has dropped to $312 million, the lowest level since early November 2024. DeFi activity is often seen as a key driver for the growth of smart contract platforms like Cardano. A decrease in DeFi involvement suggests that there may be less demand for Cardano’s blockchain, further exacerbating its price decline.

Can ADA Stage a Comeback?

Despite the current downturn, there are signs that Cardano could potentially bounce back. One positive indicator is the Relative Strength Index (RSI), a common technical analysis tool used to measure if an asset is overbought or oversold. Currently, the RSI for ADA has dropped to an oversold level of 25, which suggests that the asset may be undervalued and could be due for a price rebound if buyers start stepping in.

Additionally, ADA has dipped below the lower Bollinger band with high trading volumes, which is another signal that the cryptocurrency might be oversold. Traders who are keeping an eye on these indicators could begin to accumulate ADA at these lower prices, potentially fueling a reversal in its downtrend.

For a bullish trend to be confirmed, however, ADA would need to break through the resistance level at $0.84. If Cardano can manage to reclaim this level, it could signal that the bears are losing control, and the price could start trending upward once again.

The Risk of Further Losses

While there are reasons to be optimistic about a potential reversal, the risk of further losses still looms large. A break below the support level of $0.31 would likely trigger more selling pressure, pushing the price of ADA to even lower levels. Traders will need to watch how ADA behaves around these key price levels to determine whether the bulls or bears are in control.

Conclusion: The Road Ahead for Cardano

Cardano is undoubtedly facing a tough market environment, with its funding rates at their lowest point in a year, a significant drop in DeFi activity, and a sharp price decline. However, with signs of oversold conditions and the potential for a short squeeze if the market sentiment shifts, ADA could still have a chance to bounce back.

For investors and traders alike, it’s essential to monitor these developments closely. The coming weeks could reveal whether Cardano can turn the tide and reclaim higher price levels or if the bearish trend will persist. As always in the world of cryptocurrencies, the future remains uncertain, and market participants will need to stay informed and adapt to shifting dynamics.

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Evie

Evie is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences and express herself through her blogs.

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