A trend correction may be on the horizon given that the ADA/USD exchange rate has pushed further into its overbought region.
On Monday, the native asset of the Cardano blockchain, achieved a new high as investors placed their optimism in an impending smart contracts feature that is anticipated to increase cryptocurrency adoption.
Around 9:00 am UTC, the ADA/USD exchange rate reached its peak at $2.899, sparking expectations that it will quickly close above $3 in the following sessions.
The Cardano token had entered a price discovery process, according to many analysts, including the anonymous chartist PostyXBT. David Gokhshtein, however, suggested that the ADA/USD pair might continue to rise until September 12, when Cardano would introduce the functionality of a smart contract into its blockchain via the Alonzo upgrade.
In more detail, the Alonzo upgrade brings Plutus, a native smart contracts programming language, to the Cardano ecosystem. Plutus offers functional programming for the construction of smart contracts to common users and is already accessible for testing.
Due to Cardano’s success in luring decentralized application developers working in the developing fields of decentralized finance and nonfungible tokens to its smart contracts ecosystem, ADA bulls predict that the token’s usage will soar in the sessions that lie ahead.
Even though ADA/USD remains positive over the long term, Cardano’s technical indicators foresee a short-term shock that might cause a 40% correction in price.
The daily relative strength index (RSI) for the Cardano token has moved closer to 83, which indicates overbought conditions. An RSI reading of 70 or higher is regarded by traders as excessive. They decide to sell the asset as a result to maximize their gains.
As an illustration, a rise in ADA/USD rates during the first quarter of 2021 caused its RSI value to rise above 90. Later, the pair began to stabilize sideways, keeping support close to its 50-day exponential moving average (50-day EMA; the scarlet wave).
At this time, the price of ADA is sitting on 114% month-to-date and 1,511% year-to-date earnings. A situation of temporary profit-taking is illustrated by an oversold RSI. Therefore, if the Q1/2021 fractal repeats, ADA’s next level of support will be close to its 50-day exponential moving average at $1.73, which is over 40% less than the current pricing of $2.83.
The long-term optimistic prognosis for Cardano, though, won’t necessarily be depleted by a slump. The project might end up drawing more speculative upside bids for its ADA token as a result of the Alonzo upgrade’s possible success. Since price discovery is expected to continue, the ADA/USD exchange rate anticipates doing so.
Cardano’s long-term positive outlook won’t necessarily be exhausted by a downturn, though. The project might end up drawing more speculative upside bids for its ADA coin given the potential success of its Alonzo upgrade. The ADA/USD exchange rate, therefore, anticipates staying in price discovery mode.