Cardano (ADA) Faces a 30% Drop Risk as Indicator Flashes Concerning Data

Cardano has seen a strong 26% surge following the Federal Reserve's interest rate cuts announcement two weeks ago, boosting optimism across the crypto market.

Cardano (ADA) price is showing signs of weakness despite a recent rally, with key resistance levels remaining unbreached and on-chain data revealing a decline in demand. As a result, ADA faces a risk of a 30% drop to its yearly low, technical analysis suggests.

Rising selling pressure and diminishing demand, as indicated by Santiment’s on-chain data, presents a significant risk for ADA. The daily active-address (DAA) divergence for ADA shows a deep negative reading of -43.3% at the time of writing. This metric tracks the correlation between an asset’s price movements and changes in its daily active addresses. A negative DAA divergence indicates that the asset’s price is not keeping up with the activity on its network, suggesting a lack of organic demand.

Cardano Daily Active Addresses Divergence Chart. Source: Santiment

This divergence has been sustained since September 7, highlighting a troubling trend for ADA. The lack of demand suggests that much of ADA’s rally this month, following the interest rate cuts, is more driven by broader market sentiment than by any specific demand for ADA itself.

As traders begin to lock in profits and the selling pressure increases, ADA’s price could drop sharply without sustained buying pressure. According to technical analysis, if ADA fails to break above its current resistance level of around $0.41, analysts expect a deeper correction, potentially pushing the price back to the yearly low of $0.27.

ADA Daily Price Chart

ADA trades at $0.38, having faced a 10% rejection from its daily 200 exponential moving average (EMA) at $0.41. This level has become a crucial resistance area, as the price formed a new local high around this zone.

To the upside, ADA must push above the 200 EMA at $0.41 and the next key resistance at $0.45 to confirm a bullish trend for the coming weeks. Successfully breaking past these levels would signal renewed strength, giving the bulls control and potentially leading to higher prices.

On the other hand, if ADA fails to push above these critical levels, the altcoin could face further downside pressure. A failure to reclaim $0.41 and surpass $0.45 would likely result in increased selling, triggering a potential 30% drop. In such a scenario, ADA would be at risk of revisiting its yearly low of around $0.27.