Cardano Approaching New Highs
When trading cryptocurrencies, I like to keep my watchlist limited. It is often fiercely debated whether cryptocurrencies are a "flash in the pan" or whether they are here to stay. It's probably more complicated than that with the vast majority of cryptocurrencies likely to become worthless, while many others are likely destined for much higher prices. I've recently become interested in Cardano and added it to my portfolio this week. Let's take a look at some of its' features and the chart of its' cryptocurrency ADA.
What is Cardano?
When trading a stock or cryptocurrency, I always want to know the story. What makes it different? What edge does it have? What makes their product or service unique and innovative?
Cardano was created by Charles Hoskinson, one of the cofounders of Ethereum. Cardano is the blockchain, and ADA is the cryptocurrency just as Ethereum is the blockchain and Ether is the cryptocurrency. Whereas Bitcoin decentralized money, the Ethereum network allows for the decentralization of many other things through smart contracts and “dApps.” After the creation of Bitcoin and Ethereum, Cardano was designed to be faster, easier to scale, and more energy efficient than its' predecessors.
Proof of Stake vs Proof of Work
There are a few main differences between Cardano and Ethereum. First, Bitcoin and Ethereum miners are rewarded through “proof of work.” This means miners solve and validate transactions and are compensated with Bitcoin or Ether. Cardano, however, uses "proof of stake," meaning that the more coins someone owns, the more mining power they have. Think of this like an employee at a company who has stock options versus an employee who is paid for a task. The employee paid by the hour does his work and receives a paycheck. The CEO with stock options has a vested interest in the success of the company. By using proof of stake, Cardano is attempting to reward people for not just mining, but also for holding its' coin ADA.
It is also important to note the difference in supply between Cardano and Ethereum. While there is currently an unlimited supply of Ether, Cardano, like Bitcoin, has a limited supply. Bitcoin is limited to 21.5 million coins, and ADA is limited to 45 billion coins.
What first got me interested in Cardano was actually the chart of ADA. There are a few things that make me bullish. First, there has been clear and consistent support off the $1 range. In addition, the 40-week moving average is still in an uptrend and was never breached during the 2021 correction. Moreover, ADA is forming a beautiful base with strong accumulation on its' right side. This is similar to what we are seeing happening in Ethereum. It is also important to note that Cardano, the third-largest cryptocurrency by market cap, is currently much closer to a new high than Bitcoin is. This is a subtle clue of relative strength and a sign that ADA may be setting up for a very strong rest of 2021.
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Full Disclosure: I currently own Ethereum, Cardano, and Bitcoin.
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References: "Cardano (ADA) Explained For Beginners 2021" by Humphrey Yang