Cardano at One-Year High on Shelley Upgrade

Cardano (ADA) continues to skyrocket.

The eighth-largest cryptocurrency by market value jumped to $0.1021 on Saturday to hit its highest price level since June 2019. It has rallied by a staggering 170% in the second quarter, according to CoinDesk data.

At press time, ADA is trading near $0.098, representing a 200% year-to-date gain. Its bitcoin-denominated price (ADA/USD) also clocked a one-year high of 1,120 satoshis (0.00001120 BTC) last week.

Cardano-specific factors look to have fueled the big price rally, given that bitcoin, the top cryptocurrency and an anchor for crypto markets, has gained just 30% so far this year.

According to Daniel Ferraro, marketing director at blockchain intelligence firm IntoTheBlock, ADA's impressive rally is the result of the excitement surrounding the “Shelley” upgrade, which would make Cardano 50 to 100 times more decentralized than other prominent blockchain networks. Further, it will introduce an incentive scheme, or staking, designed to reach equilibrium around 1,000 stake pools.

Staking refers to the process of holding coins in a cryptocurrency wallet to support the operations on a blockchain in return for newly minted coins. It is similar to earning interest on a fixed-income investment such as bonds.

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An incentivized testnet (ITN) was launched in December 2019 to allow ADA holders, who acquired coins before November, to earn real staking rewards by participating in the testing of the Shelley upgrade. Currently, there are over $13 billion ADA staked on ITN, according to itn.adapools.org.

“The price rise seen over the past couple of months was likely fueled by the launch of staking on ITN," said Simon Peters, crypto market analyst at investment platform eToro, who added, “The ITN phase is over and the focus now is on the mainet, which will go live once the hard fork takes place later this month.”

The first node deployed to the mainet on July 1, containing all features that will be implemented following the hard fork, expected to happen on July 29.

Following the completion of the upgrade, ADA investors, irrespective of the size of their holdings and the date of acquisition, would be able to earn staking rewards and delegate their coins.

The lure of making passive income by staking and participating in network activities is likely to keep investor interest in the cryptocurrency high.

Sell the news?

"The Shelley upgrade will be another case of buy the rumor, sell the news," Mostafa Al-Mashita, vice president of digital liquidity firm Secure Digital Markets, told CoinDesk in June.

“Buy the rumor, sell the news” refers to a situation where the price of an asset rallies in the days or months leading up to a highly anticipated positive event and drops on profit-taking after the event has happened.

ADA has carved out impressive gains over the past few months and may remain better bid ahead of the July 29 mainnet launch. Were investors to “sell the news,” the cryptocurrency may face some downside pressure in August.

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Over 80% of Cardano's total supply of 31.112 billion coins is currently “in the money” or making a profit, of which 4.16 billion coins have been acquired at an average price of $0.087, according to data source IntoTheBock.

To put it another way, the acquisition cost of more than 4 billion coins is just 11% below the current market price of $0.098.

As a result, these holders may be tempted to take profits if prices begin to fall and their actions would add to bearish pressures around the cryptocurrency, possibly leading to a deeper decline.

Also, ADA-related sentiment in Twitter is extremely bullish at the moment, according to data provided by the blockchain analytics form Santiment.

"For many coins, extremely positive sentiment can coincide with a local top or short-term price correction, as the crowd reaches 'peak hype' and some of the whales begin to offload their bags on the increasingly optimistic bulls," Dino Ibisbegovic, market analyst at Santiment, told CoinDesk.