Cardano (ADA-USD) is up over 17% over one year.
Source: Stanslavs / Shutterstock
While that is nothing to sneeze at, 113 S&P 500 stocks have exceeded that performance through Feb. 15. The number one performance comes from Devon Energy (NYSE:DVN), which has a total return of 171.4%.
Year-to-date, ADA-USD is down 23.74%. A total of 448 S&P 500 stocks have done better, with 160 of them in positive territory seven weeks into 2022.
By merely investing in the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) a year ago, you would have matched the cryptocurrency’s performance.
It appears that Cardano’s risk-to-reward proposition has gone off the rails. What will it take to become a worthwhile investment once more? I’ll consider the possibilities.
Cardano Needs a Catalyst
Just as stocks need catalysts, so, too, do cryptocurrencies. Unfortunately, as we’ve seen over the past year, volatility has driven crypto prices wildly higher and lower.
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In late April 2021, it was trading around $1.11, near the same price as today ($1.04). Within three weeks, ADA-USD had doubled. By July, it was back around $1.11. It had gained more than 180% by early September, jumping to a 52-week high of $3.09. Over the next five-and-a-half months, it lost 64% of its value.
Now, most cryptos have taken it on the chin over the past six months. However, Cardano’s decline has been significantly worse than some of the big guns. For example, while ADA-USD is down 45.9% over the past six months compared to -6.8% for Bitcoin (BTC-USD) and Ethereum (ETH-USD) is down 4.7% over the same period.
I haven’t gone through the returns for the other seven names in the top 10 list of cryptocurrencies by market capitalization, but my guess is they’ve all outperformed Cardano.
What is it about Cardano that has gotten investors scared?
InvestorPlace.com’s Stavros Georgiadis believes that part of the problem could be that stock markets are foretelling a significant correction brought on by oil prices at their highest level since 2014, ensuring that inflation continues to eat away at people’s livelihoods. Cryptos would naturally fall in sympathy for any market correction.
As a result, my colleague suggests Cardano has several priorities in 2022. Of those, I believe the two most important mentioned by Georgiadis are 1) to increase its interoperability and scalability, and 2) to collaborate with regulators.
Suppose Charles Hoskinson, the chief executive officer of IOHK, the people behind Cardano, can demonstrate that its blockchain can work across different blockchains at scale. In that case, I don’t think there is any question investors will value its utility. In my opinion, more utility equals a higher coin or token price.
The second priority is to get regulators onside. Rather than try to change the world from the outside, Cardano should sit around the table with the powers that be in the U.S. and elsewhere and hammer out a plan to ensure its future, as well as other cryptocurrencies.
If crypto goes mainstream, the sky is the limit for Cardano.
Atala Prism Needs to Go Live
In November, I wrote about Cardano’s Atala Prism project in Ethiopia, which will see it develop a blockchain-based student attendance and performance tracking system. By creating a digital identity system for the country’s five million students, it will then be able to extend the system to all 110 million people living in Ethiopia. Places such as Africa make sense for significant initiatives such as Atala Prism.
In the aforementioned article, I wrote:
“[T]o find solutions to the world’s problems, it made far more sense to go to the poorest countries to find these answers. Why? Because if a country with few resources can deliver a cost-effective and scalable solution, it would be a piece of cake in developed countries like the U.S. and elsewhere.”
If Hoskinson and his team can demonstrate that Atala Prism works the way it was intended, the test case success story will be sure to attract investor interest. Should it roll out the digital identity system to the entire country, there is no telling how valuable ADA-USD would become.
It is another catalyst that would reverse Cardano’s slide. But these catalysts can’t come soon enough. ADA-USD hasn’t traded below $1 since February 2021.
In the meantime, if you’re not an aggressive investor, there are S&P 500 stocks that have outperformed Cardano in the past year and could do so again over the next 12 months.
On the date of publication, Will Ashworth did not have (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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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