Cardano, a rival to the Ethereum blockchain, is racking up impressive gains this year in digital-asset markets. The rally appears fueled by speculation that the network's early adoption of a proof-of-stake blockchain might help it win a growing share of decentralized-finance development.
News and analysis: JPMorgan says bitcoin proved itself in the March crash, as transaction fees for the cryptocurrency plummet.
MARKET MOVES
As Ethereum pushes slowly toward a new type of blockchain technology that some cryptocurrency experts predict could represent the future of decentralized finance, the upstart competitor Cardano is getting ready to go live.
And Cardano’s digital token, ADA, is soaring this year in digital-asset markets on speculation that the project’s early embrace of a “proof-of-stake” blockchain might put it in a stronger position to challenge the much-larger Ethereum network.
Prices for ADA have climbed over 120% this year, the second-best performance among digital assets with a market value of at least $1 billion. It’s trouncing the 80% year-to-date gains for ether (ETH), the Ethereum network’s native cryptocurrency. Bitcoin is up 31% in 2020.
ADA versus ETH on U.S.-based exchange Bittrex in 2020. Source: TradingView
The goal for Cardano, similar to Ethereum’s, is to build a massive, decentralized computing network that millions of people, businesses and governments could someday use to run financial applications from anywhere in the world. And while the Ethereum blockchain’s native token, ether, currently has a commanding lead in the competition, with a $26.3 billion market capitalization that’s 13 times the size of ADA’s, the smaller challenger might be poised to win a growing share of the fast-moving industry.
The recent catalyst for ADA’s price rally appears to be Cardano’s progress toward a key upgrade of its network known as “Shelley,” scheduled to go live over the next month.
Cardano launched its token in early 2017, but that version was “federated,” or managed more centrally. The Shelley upgrade aims to make Cardano “50 to 100 times more decentralized than other large blockchain networks,” according to the supporting foundation’s website, using proof-of-stake blockchain technology that is seen as more efficient than the electricity-hungry proof-of-work system used by the Bitcoin blockchain. A testnet of Shelley launched on June 9.
Ethereum is moving to shift to proof-of-stake from proof-of-work as part of a “2.0” upgrade, but backers of that project have only stipulated that the transition will begin by September and then be phased in over stages.
“We believe Cardano’s recent price appreciation is partially related to the anticipation of their mainnet launch,” Guy Hirsch, managing Director of multi-asset brokerage eToro, told CoinDesk. “If the team working on the project fails to deliver what was proposed, then the market might react negatively.”
Cryptocurrencies tied to staking have been among the hottest this year in digital-asset markets, partly because holders can earn rewards akin to interest – especially prized as the world’s biggest central banks have slashed interest rates to accommodate economies racked by the coronavirus and related lockdowns. Another staking token, Tezos (XTZ), is up 93% this year.
According to the Cardano website, investors can receive 10% a year in “delegation rewards” from staking ADA.
Individual staking rewards calculator for ada. Source: Cardano
“I'm personally short on ADA currently,” Mostafa Al-Mashita, vice president of digital liquidity firm Secure Digital Markets, said via a Telegram chat. “We do trade it for our clients. I think the Shelley upgrade will be another case of, ‘Buy the rumor, sell the news.’”
Cardano’s charismatic leader is Charles Hoskinson, who marshals the project as co-founder of his own five-year-old engineering company, IOHK. And he might be perfectly equipped, based on his prior work experience, to take on Ethereum: He was an Ethereum co-founder before leaving in 2014.
Hoskinson posted a roadmap on Twitter showing that full staking via the Shelley upgrade would be available by August 18.
The rollout for Cardano’s Shelley update. Source: Charles Hoskinson
“Cardano has very high potential in my opinion,” Michael Gord, CEO of GDA Capital, a firm that trades various cryptocurrencies, including ADA and ether. In the race to build a computing platform for applications designed to run on decentralized networks, he said, “it’s the only blockchain that is challenging ether as the potential No. 1 operating layer.”
Yet in crucial ways, Cardano lags far behind Ethereum.
Cardano doesn’t plan to add smart contract programming – the key to building decentralized applications, known as dapps – until a subsequent phase; Ethereum already offers the functionality. According to the website DeFi Pulse, 19 of the top 20 dapps by volume are using the Ethereum network, and the remaining dapp is on the Lightning Network, which is associated with the Bitcoin blockchain.
In digital-asset markets, Cardano registers little more than a blip compared with the Ethereum network, already used as the backbone for dollar-linked stablecoins like Tether and USDC, as well as early-generation decentralized exchanges and lending platforms.
Ether’s liquidity at $594 million per day is about 10 times ADA’s, according to Messari, a provider of data on digital assets.
“Replicating Ethereum's developer footprint and network effects is nearly impossible for a smaller network today, and probably value destructive for the crypto ecosystem,” Lex Sokolin, global fintech co-head at the Ethereum-focused software-engineering firm ConsenSys, told CoinDesk in an email.
One thing that the competing projects have in common is high-profile leaders: Where Ethereum has Vitalik Buterin, Hoskinson provides the charismatic presence for Cardano’s development.
He frequently conducts live ‘ask me anything’ sessions on YouTube, interspersing discussions of the Shelley release with musings on meditation, fasting and picking radishes in his garden.
He can be brusque with questioners he feels are unprepared or less informed. In a surprise AMA session on June 9, Hoskinson told one community member, “I will answer your questions if your questions are new, but if your questions have been answered previously, you need to pay attention.”
Charles Hoskinson conducts a surprise AMA. Source: YouTube
Admirers say he’s merely doing his job of taking Cardano to the next level.
“Thanks to Charles Hoskinson, Cardano enjoys some of the same audience and hype that has carried Ethereum into the upper echelons of the industry,” said Edward DeLeon Hickman, founder of Anatha, a startup building its own blockchain.
In a recent interview with Hoskinson, he acknowledged how little control he has over the market for ADA tokens.
“Sometimes the market just values something differently, and you just accept that as reality, because you can’t really fight the market, and then you just do your best to try to work within the constraints of a broken system,” Hoskinson told CoinDesk in a recent interview.
Traders seem more willing than ever to take a view on Cardano as a cryptocurrency. And gains this year in the ADA token may represent a bet on the ability of network's leader to execute the project roadmap.
– Daniel Cawrey, Senior Markets Reporter
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Trend: Bitcoin fell to three-week lows below $9,000 earlier on Monday and may be looking at further losses as technical charts have turned bearish.
To start with, the 14-day relative strength index has dipped below 50, confirming a head-and-shoulders breakdown – a bearish reversal pattern. Meanwhile, the MACD histogram, an indicator used to identify trend changes and trend strength, is beginning to produce deeper bars below the zero line. That implies that the downward move may be about to pick up the pace.
On the downside, key support is located at $8,630 (May 25 low). A breach there would invalidate the bullish higher-lows pattern and may invite stronger chart driven selling. Below $8,630, the focus would shift to the 200-day moving average (MA) at $8,000.
So far, however, downside has been restricted near $8,900. At press time, the cryptocurrency is trading near $9,089, representing a 2.7% decline on the day.
While the daily chart indicators are biased bearish, the longer duration charts are still calling a move to the higher side. Notably, the weekly chart RSI is hovering in bullish territory above 50 and the 10-week MA is still trending north in favor of the bulls.
As a result, a fresh move to $10,000 cannot be ruled out. The probability of a move higher would improve if prices hold above $9,000 through the U.S. trading hours.
The options market is also suggesting losses may be limited, with the put-call volume ratio having risen to three-month highs.
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Cardano's No Ethereum Killer Yet, But It's Winning in Crypto Markets