ADA Token Price Rises 23% this Week, Leading to Concerns of a Correction

Cardano’s ADA token saw a significant surge in its value this week, experiencing a 23% increase that has left analysts wary of a potential market correction. At the current moment, ADA has shown a 3.52% gain in the past 24 hours, leading to an impressive 7-day return of over 23%. Despite these gains propelling ADA into high-profit territory, there are concerns that this surge might have its drawbacks.

Various market indicators are pointing towards a looming overbought situation for ADA, which could trigger profit-taking activities and subsequently result in a market downturn. Commonly, when investors start to see substantial profits, they tend to capitalize on them, leading to a downward trend. It is highly likely that ADA could soon enter a phase of distribution, where investors will start selling their holdings in order to realize their profits.

Joao Wedson, from Alphractal, shared his perspective on the matter, suggesting that investors should anticipate a short cooling period before ADA potentially rallies past the $3 mark by October or November. He has identified $4.90 as a key selling zone, indicating that there still might be more room for gains, but investors should brace themselves for increased volatility.

In the realm of decentralized finance (DeFi), ADA’s Total Value Locked (TVL) has demonstrated a 3.44% increase over the last 24 hours, reaching an impressive $313.75 million. Usually, such an increase signals positive long-term sentiment as investors secure their ADA in various protocols to benefit from rewards. However, this spike in TVL could also suggest that long-term investors are looking to generate passive income from ADA, even as the asset potentially enters a distribution phase.

Analyzing investor sentiment in the spot market unveils a clear theme – there is a noticeable selling trend for ADA. Data from recent hours has shown that around $280,000 worth of ADA has exited exchanges, indicating a significant outflow following days of steady accumulation. This outflow strongly implies that investors are seizing profits and transferring their holdings off exchanges, underscoring a potential distribution phase.

Examining the derivatives market indicates a mixed sentiment, though buyers still hold a slight advantage. Liquidation data, at the present time, showcases nearly equal volumes for both long and short positions in the perpetual market, with approximately $4.9 million liquidated on either side. This demonstrates a level of indecision regarding ADA’s market direction. Nevertheless, the Long-to-Short Ratio leans towards bullish sentiment, with recent buyer volume making up 76.22% of trades, while sellers accounted for a minimal 23.78%.

Despite the prevailing bullish sentiments, there might be looming risks if selling pressure intensifies. ADA’s recent value surge has placed it in a high-profit zone, which could trigger profit-taking activities and consequently lead to a market decline. Investors must remain vigilant and prepared for potential volatility in the coming weeks.