- ADA/USD exchange rate shot up in the overbought zone.
- RSI reading above 80.
- ADA showing 40% correlation with Bitcoin year-on-year.
JAIPUR (Coinchapter.com) – Cardano’s native blockchain asset, ADA, risks correcting significantly after an explosive rally that pushed prices towards $3.
The pair looks primed to repeat August 14’s scenario when prices spiked to $2.25, followed by a 17% drop to $1.88 on Tuesday. Sellers booked profits then, as they appeared to have assessed bearish relative strength index (RSI) readings.
In the ongoing rally, ADA raised eyebrows after securing a new all-time high at $2.88 Monday. The breakout took shape on the back of bullish traders betting on the highly anticipated Alonzo rollout. But it sparked ‘overbought’ fears again as RSI inched up to 84.
Cardano’s Alonzo Factor
In detail, the Alonzo update is crucial to Cardano fulfilling its Goguen era. The blockchain will be successfully rendered smart contract compatible after Alonzo activates on the mainnet. Popularised by Ethereum, a smart contract is a program that executes automatically upon fulfillment of conditions between the transacting parties.
September 12 is the scheduled date for the Goguen era completion. The same, along with Alonzo, will bring Cardano head-to-head with Ethereum. And help it break into the $100 billion DeFi space.
Bitcoin Correlation and Technical Setup
ADA rose in tandem with the broad cryptocurrency market. But with a 55% correlation with Bitcoin over the 30 days and a 40% correlation year-on-year. Although the number is positive, it still indicates that the asset is leaning independently and is not the mirroring moves of the flagship cryptocurrency.
The ADA/USD pair heavily skewed into overbought territory. And the low correlation with Bitcoin implies that price drops will be significant compared to the benchmark crypto asset. So while a major loss-filled session may follow, bullish traders called for ADA’s ongoing bullish phase to continue till it crosses $8.
Nonetheless, the ADA/USD pair risks correcting to the bottom trendline of the Ascending Channel within which it has been trading since August 10.
A 10% correction from current prices would pull down the pair towards $2.59. If the selling pressure continues, ADA prices could further slide towards $2.5 and $2.38.