Cardano (ADA) Could Drop Another 16% as Pessimism Takes Over the Market

Trump’s pro-crypto actions last week, which included the creation of digital assets reserves for the United States and a crypto summit at the White House, did little to instill some optimism in market participants.

ADA’s losses accelerated during the weekend and the token has already booked a 29% retreat in the past 7 days. As a result, most of the gains that ADA experienced after Trump mentioned it as one of the candidates to make it to his crypto reserve have evaporated already.

Meanwhile, trading volumes have jumped by 53.2% in the past 24 hours with nearly $2 billion worth of ADA exchanging hands during that period.

Trump’s announcement misled market participants to believe that the government could become an active buyer of ADA tokens.

However, as per the President’s executive order, the newly-created U.S. Digital Asset Stockpile, which would have supposedly accommodated altcoins like Cardano, will not be making any crypto purchases.

Instead, this reserve will be funded with cryptos that the government already owns – most of which have come from asset seizures.

Daily Chart Shows Big Downside Risk Still Ahead

ADA’s daily chart shows that the token has been on a downtrend since it hit the $1.17 level two times in a row, meaning that a double-top pattern is unfolding and it has now been confirmed by momentum indicators.

Now that ADA’s inclusion in a crypto reserve is out of the question, the reason why the asset initially rose to those levels lately is no longer a relevant price driver.

Market sentiment has swung to extreme pessimism according to CoinMarketCap’s Fear and Greed Index, which has now dropped to a record low of 17. At this level, market participants are considered to be in “Extreme Fear” mode.

The next relevant area of support for ADA in this daily chart is found at $0.58, resulting in a 16.3% downside risk.

The Relative Strength Index (RSI) has sent a sell signal already as it moved below the signal line while the MACD’s histogram has moved to negative territory for the first time in the past 8 days.

These momentum indicators are favoring a bearish short-term outlook for ADA. However, swing traders would have to wait for a dead-cat bounce to enter a short position at a more advantageous price point as sellers will likely take a breather soon to take some profits off the table.

Next Support for ADA Stands at $0.650

Moving to the hourly chart, ADA’s momentum is also quite negative but the nearest support is now just 4.5% away at around $0.650. A short position at this point would not be favorable from a risk-reward perspective as the market could bounce back at any point as sellers move to take profits.

Since the trend is downwards, there’s no good reason to take a long position. Hence, a bounce off the $0.650 level could provide a decent entry point for a short trade as ADA continues its journey to the $0.580 level.

The Relative Strength Index (RSI) has moved below the signal line in the hourly chart as well and today’s negative momentum has spilled over to the American session.

Traders should be patient to take positions that offer the highest risk-reward ratio in this volatile market as trading volumes have increased significantly, meaning that prices could swing more wildly than usual.