Cardano (ADA-USD), the seventh-largest cryptocurrency by market capitalization, has been in a tailspin for the last six months. The ADA crypto peaked at $2.96 on Sept. 1. and by Feb. 14 it had dropped to $1.05, a drop of 64.5% in that period.
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That is more than a correction. There is no way to describe it other than a massive depression. Unfortunately, this is very characteristic of many cryptocurrencies. Investors should be accustomed to this. They have to expect this.
The way to manage this is to have an average cost plan. Never put your whole allocation for cryptocurrency investment in at any one time.
The reason is that within six months to a year, you will most likely have a chance to buy in at a much cheaper price. That means lowering your average cost by buying more as the currency falls.
Indications of Value In Cardano
Over the long run this should probably work out, although, unlike with stocks or bonds, there is no real tether with underlying value.
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I have tried to point out there are some ways to measure indications of value. But this is not the same thing as you have with fundamental analysis with stocks.
For example, in my last article, “Cardano is Set to Rise From Here Based on Strong Wallet Growth,” I referred to an article in CryptoPotato magazine. It showed that the number of digital wallets holding Cardano had reached 3 million. This was less than two months after the cryptocurrency had registered 2.5 million addresses, as tweeted by the Cardano Foundation.
The number of wallets holding Cardano is not in and of itself a fundamental factor that could lead to a higher price for ADA crypto. But its growth rate is an indication of value, which is not the same thing as a fundamental factor.
Investors Buying the Dip
Another indication of value is the fact that investors seem to be buying more Cardano at these prices. There are a number of articles now showing that investors seem to be averaging down, just like they should when an asset is near a trough price.
For example, CryptoPotato recently wrote that Cardano investors holding between 10K and 1M coins have more than doubled in January and is now down to $1.05. They referred to a tweet by Santiment where they said that these investors have 113% more ADA crypto in their “bags.”
In addition, articles are coming out in publications like CoinGape that ADA buyers are “defending” the $1 support price.
What to Do
The lesson to learn from this is that there is no way to determine the long-term bottom in a cryptocurrency. There are only tangential indications of value. For example, if more people find the cryptocurrency useful their demand for the tokens will rise.
That could be occurring now with Cardano, now that it has transitioned to allowing smart contracts, as I wrote about earlier in January. This has to do with the Alonzo fork upgrade for Cardano which happened in September 2021.
But that point was the peak in Cardano’s price. Since then ADA crypto has been in a tailspin. Averaging down into Cardano is the best way to eventually be able to lower one’s cost enough to ensure a profit. But that profit may take the very long-term. For the time being that is more than the past six months.
This is the reality of Cardano and a number of other cryptocurrencies. They are extremely volatile, and not suitable for any but a small portion of most people’s total portfolio. The way to handle this is to leave room to average ADA crypto with any particular purchase.
On the date of publication, Mark R. Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.
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