Cardano could be displaying the type of contrarian setup traders watch carefully near exhaustion. Santiment’s on-chain data and derivatives shows that ADA’s 365-day Momentum Value Ratio (MVRV) has dropped to -43 percent, while Binance Funding has the biggest imbalance in favor of shorts ever since June 2023. The analytics firm argues this combination has historically coincided with bottoming situations.
Cardano (ADA), Is the bottom near?
Santiment’s core thesis Cardano holders that have been actively trading over the last year now find themselves in a deep hole, changing the risk/reward profile of new buyers. “Average wallets that have been active on the Cardano network over the past year are netting a return of -43% on their investments,” The firm posted on X. This extreme negative meme is not about altcoins’ major price drop of -71% since September. MVRV value is generally an indicator of $ADA being in an ‘opportunity’ or ‘buy’ zone.”
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The argument hinges on Santiment’s interpretation of MVRV or the gap in market value and actual value over a 365 day period. The firm argues that when participants are sitting on large unrealized losses the downside risk starts to reduce because they have already gotten rid of weaker positions. Chart shared by firm. sub-zero MVRV territory As an example, “opportunity” The zone is centered on the ADA reading.
Santiment took this point a step further by presenting a contrarian reading that was more explicit. “In a zero-sum game, when average returns are severely negative, this is an indication of a looming turnaround with coins always averaging 0% on MVRV’s (average trading returns) across any timeframe. So when other traders are in severe pain, key stakeholders and professional traders are intrigued by this due to the lowered risk of buying or adding on to their positions.”
It does not guarantee that a bounce will occur, but the rationale behind it is clearer. It is not so much about the immediate market momentum as it is about its structure. If most of recent participants have already been trapped in a losing situation, then marginal pressure to sell can begin to weaken and value-focused buyers will step in.
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Second, the market for perpetual futures is the second part of the set-up. Santiment reported that Binance Cardano’s funding rate is showing the biggest ratio of longs to shorts since June 20,23. That indicates that traders have a strong bias toward further decline. This can be as important as the actual spot chart in crowded positions regimes.
“Cardano’s funding rate Santiment said that Binance “is seeing the greatest ratio of shorts compared to longs” since June 20, 2023. “Traders are clearly expecting that the #12 market cap will continue to decline in value. This historically is another bottom signal, as funding rates are always prone to liquidate and send prices in the direction that traders are expecting the least.”
This last point is really the crux of our analysis. Santiment does not just say ADA is cheap following a 71% decline since September. Cardano, it argues, is now at the intersection of a classic reversed ingredient: a deeply negative return to holders combined with an overcrowded bearish trade in derivatives.
As of the time this article was published, ADA is trading at $0.2666.
Featured Image created using DALL.E and chart from TradingView.com
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