The price of Cardano is at risk of declining due to the imminent Ethereum Pectra upgrade.
Historical trends suggest that enhancements to the Ethereum network have not typically been favorable for Cardano.
The Pectra upgrade is set to launch today, May 7, and despite this, Cardano has managed to achieve an intraday increase of 2% as of the time of this report.
Nevertheless, will past patterns repeat themselves and lead to a significant drop in ADA, potentially breaching the critical support level of $0.66? Let us investigate.
Why Cardano Price Faces Pressure from Ethereum’s Pectra
The competition between Cardano and Ethereum for market leadership has persisted for several years, as both are among the earliest layer one networks in the cryptocurrency sector.
This rivalry has frequently resulted in ADA experiencing downward pressure whenever enhancements are made to the Ethereum network aimed at increasing its scalability and utility.
For example, Cardano's price saw its most significant decline in 2021, which commenced following the London upgrade that implemented a mechanism to reduce transaction fees, thereby making ETH more deflationary.
In 2022, ADA also faced a downturn after the Ethereum Merge, which shifted the network from a proof-of-work to a proof-of-stake consensus mechanism.
The latest upgrade of ETH occurred at the beginning of last year, coinciding with a 65% drop in Cardano's value following the Dencun event.
Should historical patterns repeat and the forthcoming Pectra upgrade trigger a decline for this competitor of $ETH , the price of $ADA may be vulnerable to a significant downward trend.
Looming Long Liquidations Put ADA at Risk
Should Cardano experience a decline and breach significant support levels, reminiscent of past occurrences, the concentration of long liquidations near $0.66 will exacerbate the downward trend.
The liquidation analysis indicates that over $5.4 million in long ADA positions will be liquidated if the price reaches this threshold, resulting in a surge of selling pressure.
Analyst Kamil responded to the situation by asserting that "ADA traders are engaging in risky behavior," as the elevated leverage on this altcoin is likely to induce volatility in Cardano due to the closure of millions of positions.
In addition to the significant long leverage, another analyst pointed out that a reduction in whale activity and transactions will negatively impact the price forecast for Cardano. He stated,
Whales are retreating, resulting in a decline in transactions of up to 83%. We continue to monitor the situation for signs of stabilization; otherwise, we may witness a decrease in confidence from major investors.
Current market conditions suggest that Cardano's price may experience downward pressure in the upcoming weeks, consistent with historical trends observed during the Pectra upgrade launch.
Nevertheless, a surge in network activity could challenge this pessimistic view, as data from DeFiLlama indicates that the stablecoin market capitalization on the blockchain has achieved a record high, signaling heightened network utilization that could enhance ADA's utility.
Cardano Technical Analysis
The four-hour Cardano chart presents a mixed technical outlook for ADA. The RSI has been unable to surpass the 50 mark, indicating a decline in recent buying momentum, which could lead to a continuation of the downward trend illustrated by the descending parallel channel.
Nevertheless, Cardano's price is on the verge of potentially breaking out of this channel, and the MACD has generated a buy signal after crossing above the signal line. A significant breakout from the bearish pattern will only be confirmed if the price closes strongly above the resistance trendline, accompanied by the RSI achieving a higher high above 50.
In conclusion, Cardano could be approaching a downward correction if historical patterns repeat and the forthcoming Pectra upgrade on Ethereum triggers a price drop.
This bearish outlook will be negated if ADA manages to close decisively above a descending trendline, indicating a potential shift from a negative trend to a sustained upward trajectory.
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