Will the shorting activity on Cardano act as rocket fuel for a potentially explosive rally

Cardano (ADA) has witnessed a notable surge in short-selling activity, reaching its highest shorting versus longing ratio since September 2023, as per Binance data. The increase in short positions has raised questions about whether this bearish sentiment could trigger a rebound rally for ADA.
Data from Santiment on XRP (XRP) indicates that both Cardano and XRP are experiencing significant shorting activity by traders following recent relief bounces.
According to Santiment, the heavy shorting of Cardano and XRP after relief bounces is a positive sign for patient bulls, as liquidating shorts can act as “rocket fuel” for continued price increases.
As of June 18, 2024, the Binance funding rate for ADA stands at -0.01374%, reflecting strong bearish sentiment. A negative funding rate means that short sellers are paying a premium to maintain their positions, indicating high demand for short trades. This bearish sentiment often precedes a short squeeze, where short sellers are compelled to buy back the asset, potentially driving up the price.
Derivatives data from Coinglass reveals that the long/short ratio for ADA is 0.9755, indicating more short positions than long positions and suggesting bearish market sentiment. However, Binance’s specific long/short ratio for ADA is 3, indicating significantly more long positions relative to shorts on this platform. This divergence highlights a divided market sentiment, with Binance traders being more bullish compared to the broader market.
Santiment’s analysis also suggests that ADA and XRP may be undervalued. The Market Value to Realized Value (MVRV) ratio, which compares the market capitalization of an asset to the total realized value of all its coins in circulation, indicates that ADA could be extremely undervalued. A lower 30-day MVRV ratio suggests that ADA is undervalued and increases the likelihood of a short-term bounce. Cryptocurrencies with low MVRV ratios historically tend to experience price recoveries.
The heavy shorting following market bounces can serve as a precursor to bullish activity. In the case of ADA, the recent surge in short selling may lay the foundation for a significant rally. As short sellers cover their positions during a rebound, the buying pressure can escalate, potentially leading to a sharp price increase. Santiment’s data supports this view, suggesting that heavy shorting on assets like ADA following relief bounces can provide the momentum needed for sustained price rises.
Currently trading at $0.39, ADA has experienced a 2.9% decrease in a day. Crypto analyst Sssebi views this current downturn as an opportunity for investors to accumulate more ADA at discounted prices. Sssebi suggests that if Bitcoin continues to decline, ADA could drop further to $0.38. The recommended approach is to employ dollar-cost averaging (DCA) at these prices, anticipating a significant bounce once the current dip is over.
In addition, Cardano recently revealed plans for a significant step towards full decentralization through the “Chang” hard fork upgrade. The combination of high short selling activity and strategic developments could potentially transform the current bearish momentum into a catalyst for a robust bullish rally in ADA’s market.
As these dynamics unfold, the crypto community and investors are closely monitoring the situation, prepared for potentially volatile market movements.
Disclaimer: The content on this site should not be considered investment advice. Investing in cryptocurrencies carries risks, and your capital is at risk.