Cardano is entering a historical phase, with average ADA holders facing significant losses and the derivatives markets heavily skewed towards shorts. The last time these two signals appeared on the charts, ADA saw a surge of 300%. These technical signals flash as ADA tests the 50-day moving average after trading below it for around 7 months.
Cardano is at the cusp of a historical event where ADA prices surged by more than 300 percent. The Market Value to Realized Value (MVRV) ratio, which compares the current price of the token with the value of the tokens since their last move, has gone into the negative zone. In short, this indicator measures the average trading returns.
43% of ADA holders from last year are underwater
MVRV ratio values greater than 1 signify that the holders are in profits, while negative values suggest that the average holder is in losses, and values closer to 1 denote that the market is at a fair value where the returns and losses are approximately equal.
A -43% on the 365-day MVRV scale shows that about 43% of the traders who invested in Cardano during the past year (365 days) are at a loss. When the MVRV crashes deep into the negative zone, it shows that traders who panic sell have already sold, and the market is in the buying zone.
When the panic sellers are sieved out, the remaining are the ones who are willing to go through the rough patch—suffer losses but wait till they break even or are in the profit. So, when these are the ones remaining, the selling pressure drops and creates perfect conditions for buying.
Funding rate goes negative as shorts pile up
From the derivatives’ perspective, the market is lopsided, as the funding rate is negative. When the funding rate goes negative, it indicates that the shorts are paying the longs to hold their position. The funding rate plays a crucial role in maintaining the future market price in close proximity to the spot market.
So when shorts are paying to open positions, it means that they are confident that the underlying asset, ADA prices, will further crash. However, a small recovery in ADA prices could trigger a large short squeeze.
ADA faces major resistance level
However, this is not the first time that these two major signals appeared on the charts. The last time such an event happened, ADA recovered and rallied by 300%. Currently, ADA is in a buying zone, as the fixed volume range indicator shows a lot of trading activity at the current ADA price level.
Given that the buyers return to the market to buy ADA at 2023 October levels, the coin’s price will cross above the 50-day MA, which has obstructed ADA for 7 months. The higher lows in the relative strength index also indicate that bullish momentum is building.
