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How To Invest In Cardano: The Playbook

The native token ADA from Cardano is a special beast. It oscillates in price at a crazy speed. The social media landscape of the project is very divisive: some people love it, some people hate it. If you post “Cardano” on Twitter, you have to be ready to enter an intense discussion because nobody will have a moderate opinion. In the long run, I’m a Cardano bull. I believe that the project looks a bit like Apple in the early days: too expensive, too slow but with a winning vision. How do I invest in Cardano and spot buying/selling zones for ADA?

Ledger Wallet

1. Spot a ridiculously overvalued ADA

ADA has a tendency to explode based on the news. Most of the time this leads to ridiculous overvaluations.
For example, let’s go back in time. July 2021. Smart contracts for Cardano are announced and finally released in September. In the meantime, a 184% rally in 40 days:

Happy days? Nope. At that point everybody in the crypto community with a bit of experience knew it was a selling point.

2 reasons for this:

First, based on on-chain analysis, there was a mismatch between the number of active addresses and the price.

Let’s have a look at the active addresses (using Messari) and the price on the same chart.
Price in white, addresses in blue:

If I had to explain the overvaluation in a snapshot:

This price was not sustainable in September (red cross) for this number of active addresses. The fair price for this level of network activity based on a year of history is more between $1 and 1$.40 (green check)… Not $3!

Then, based on more fundamental analysis, the smart contract release was not ready to be plugged to Dapps.

No product was actually ready to deploy smart contracts at scale in the Cardano ecosystem! As a developer, I know this story very well: it takes time to leverage a new technology. Also, the Cardano infrastructure is simply more complicated than Solidity. I couldn’t imagine hundreds of Dapps just flourishing like this after the deployment. What’s the consequence of this? The market realizing it and crashing straight away.

2. Spot a ridiculously undervalued ADA

Now let’s look at undervaluations. This month, ADA reached $0.79….Ridiculous.
Why is it ridiculously undervalued?

First, because of the same type of mismatch on active addresses. Let’s have a look at the exact same chart.
Price in white, addresses in blue:

If I had to explain the undervaluation in a snapshot, I would go for:

This price of $0.79 (red cross) was not sustainable this March for this number of active addresses. It should actually be around the average fair price (green check): $1+. When ADA dropped that low, it was time to invest in Cardano!

Then, based on a basic historical price comparison: the price of ADA in 2017 was around $1. Do you really believe that the price of ADA in 2017 (even at the top of the bubble) should be 20% higher than in 2022? ADA back then was a speculative token, now it’s a beast with billions of dollars in staking, NFTs and partnerships all over. ADA at a price of $0.79 2 weeks ago was a buying opportunity.

3. Conclusion

Metcalfe, Metcalfe, Metcalfe. A given number of active addresses should correspond to a “fair price”.

-If for the same number of active addresses, the price is 3x: time to sell.
-If for the same number of active addresses, the price is 0.7x, time to buy.

ADA loves to do both because people are overly emotional about the coin… And I love to leverage this to invest in Cardano.

Thanks for reading.

Disclaimer: this is not financial advice

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