Cardano (ADA) recorded an impressive 43% gain in the seven days leading up to Dec. 14, reaching its highest level since May 2022. The rapid increase to $0.64 has pushed Cardano's market capitalization to $22.7 billion, an interesting point to note, as it matches the valuation of Danske Bank (DANSKE.CO), Denmark's largest bank, which serves over 5 million retail customers.
While ADA’s market cap is quite impressive, it's essential to recognize that decentralized protocol valuations differ significantly from traditional financial assets. Traditional assets rely on generating revenue to cover expenses, including financing costs and operational overhead. On the other hand, Cardano is a decentralized protocol, so its market capitalization does not depend on sales and earnings. Nevertheless, it's important to analyze the potential reasons behind ADA's price increase to determine if further gains are possible.
Is ADA’s rally backed by fundamentals?
Constructing a narrative for Cardano's recent success is relatively straightforward, but pinpointing the specific events responsible for the 70% gain in December is more challenging. For instance, a post on the social network X by user @matiwinnetou brilliantly highlights the driving factors behind this bullish momentum.
Starting with the argument of "liquid staking," there haven't been significant changes in the past 30 days, with the staking ratio remaining relatively stable at 64.3%, according to StakingRewards. Furthermore, the adjusted yield, which accounts for new coin issuance, remains a meager 0.6%. Similarly, there haven't been any upgrades or improvements in the transaction fee structure or validator slashing in recent months.
The argument about the minimum staking amount doesn't hold when considering that other cryptocurrencies, including the leader Ethereum (ETH), offer non-native liquid staking services with much higher yields. In Ethereum's case, the adjusted yield is 4.6%, while Avalanche (AVAX) offers a 2.4% annualized return.
@matiwinnetou's post mentions other factors such as native assets held on-chain and a substantial treasury fund to support ecosystem development. While these are valid points, none of them have changed significantly in the last couple of months to justify the recent surge. Moreover, the author deserves credit for also acknowledging the negative aspects of Cardano's development.
Now that we've identified the foundational aspects driving the price increase, let's delve into the specific events and data that have drawn investors' attention to Cardano.
Reduced regulatory risk and increased activity in Cardano’s decentralized applications
ADA's price had been suppressed after the U.S. Securities and Exchange Commission (SEC) filed lawsuits against Binance and Coinbase in June, alleging that they were operating as unlicensed brokers and dealers. Each lawsuit specifically cites Cardano as a security instrument, along with dozens of other altcoins. However, this narrative lost credibility when U.S. Senator Cynthia Lummis strongly criticized the SEC's "ruling by enforcement" in a Nov. 20 social media post.
The historically low activity in Cardano's decentralized applications (DApps) has been a frequent source of criticism, but the network has been gaining momentum.
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Data from the past 30 days show a 16% increase in its user base and an 83% growth in DApps volumes. Such data is highly positive, especially considering that the top 5 chains, on average, saw a 13% decline in active addresses and a modest 22% volume gain. In fact, none of the top 7 chains matched Cardano's increase in active addresses.
Cardano's decentralized exchange (DEX) Minswap deserves recognition for its 26,400 active addresses and $178 million in 30-day volumes, followed by the NFT marketplace JPG Store with 16,540 active addresses during the same period. Nevertheless, from an absolute standpoint, Cardano still has room for growth both in terms of active addresses and volumes.
ADA's bullish run has been fueled by increased activity in its decentralized applications and reduced regulatory risk, as the SEC's overreach becomes more apparent.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
