Cardano’s Hoskinson claims ‘Hail Hydra’, but how will it impact ADA price?

Key Takeaways:

• Cardano’s L2 solution sees successful demo on its DEX, SundaeSwap.
• Cardano (ADA) price is at the lowest point in 22 months.
• Extreme bearish pressures to plague the ‘third generation’ crypto for the foreseeable future.

In another major step forward for the Cardano blockchain network, the founder of the network has claimed ‘Hail Hydra’ as Cardano’s native DEX completed a successful demonstration of running SundaeSwap on Hydra, a Cardano based layer-2 blockchain.

According to IOHK in a paper released back in March 2021 – Hydra is an isomorphic multi-party state channel. It is basically a way of improving a blockchain’s throughput and latency by using offchain protocol and smart contract development by adopting the layer-1 smart contract system.

Hail Hydra! So glad to see this demo. Hydra is coming to cardano one DApp at a time https://t.co/k9i1wG3OKO

— Charles Hoskinson (@IOHK_Charles) October 15, 2022

However, the CTO of SundaeSwap has mentioned that the actual implementation of the move is still quite far off, things seem to be heading in the right direction.

The thing I've been emphasizing in person is: IMO Hydra is not a single solution; it's a design space, of which the Hydra team has been building the "purest" example; there are lots of other points in the space that make different tradeoffs and are suitable for other dApps.

— Quantumplation | Pi Lanningham (@Quantumplation) October 15, 2022

So, from the outset, it seems like things are going well for Cardano, popularly touted as the third generation of crypto which could potentially have the capability to become a true ‘Ethereum killer’ in the future. Especially with the Vasil Hard Fork successfully implemented on the Cardano blockchain in a plan to improve upon the speed and scalability of the network.

Additional read: Cardano Vasil Upgrade 

Cardano’s technical standing

ADA/USD | Source: Tradingview

From a technical point of view, Cardano price action is looking extremely weak. It has sustained a proper breakdown below all significant levels of support and even broken down below the descending triangle pattern – which is a well established bearish price pattern in technical analysis. A breakdown below that signifies that the particular token has lost the support of buyers and seller activity on the coin has increased in multifolds. ADA price had been stuck in the descending triangle pattern ever since the crash of May 2022 and has finally broken down below it.

Since almost the beginning of the month of October, ADA has lost over 17% and the news of the successful Hydra demonstration did bring about some positive action on 16 October – but quickly lost almost all of it. Its Relative Strength Index is also below 30 levels, currently at about 27 as of writing. The region between 20-30 is widely considered to be an oversold zone and hence some pullback may be seen as short sellers books profits in the market.

But those pullback rallies almost definitely won’t sustain in the near future unless there is some dramatic fundamental shift in the sentiment of the market. ADA price, as of writing is at the lowest point in the past 22 months!

The case of Cardano’s falling Active Addresses

Active Address Count | Source: coinmetrics.io

Despite developments happening all across the board on the fifth largest crypto by market capitalization – Cardano is rapidly losing its active addresses count. It has been on a strong downward slide ever since the beginning of the year. This is somewhat confusing because it only added smart contract capabilities last year with incremental upgrades to improve scalability and decrease transactions costs less than a month ago, it should make for a winning blockchain combo. But somehow, investors are still looking to Ethereum and the likes to sustain their dApp needs.

A decreasing active addresses count only means that there are fewer people on the chain who want to transact on the chain and use its various utilities and improve adoption. This is a strongly bearish sign for any blockchain and particularly for this crypto since it boasts of a network that is based off of a peer reviewed development system.

ADA’s NVT Ratio hints at further bearishness

Adjusted NVT Ratio | Source: Messari.io

Now, if you observe the chart, despite Cardano’s falling prices, we’re seeing unsustainably large spikes in the NVT Ratio. To understand this, let us first quickly revise what an NVT Ratio is. Similar to price to earnings ratio (PE Ratio), Network Value to Transaction ratio is simple a ratio that described a relationship between market capitalisation of the crypto and its network volumes. Or in other words, market cap divided by network transaction volume.

Now, a decreasing ADA price directly points to a decreasing market capitalisation as each of ADA crypto token in circulation would be worth less and less. Now in a ratio if we see a numerator decreasing but the solution of the ratio increasing at the same time, the only logical conclusion we can come to is that transaction volumes on the chain are dipping faster than the falling ADA price. Which ties in perfectly with the active addresses count metric indicated above.

Additional Read: Cardano Price Prediction

Conclusion

Hence, we can conclusively say that Cardano is in a very bad situation. Every technical indication points to strong bearish sentiment in the coin which ties in perfectly with logical inferences made from on-chain metrics. Positive buildup seems to be a very distant dream and all pointers hint at a stronger breakdown in ADA price going forward.

Prices as on 17 October, 2022.