ADA VS BTC: Where will ADA go - Relative Strength Show Down
Who bought ADA because it would "KILL ETH!"
Who is still holding that ADA because "there's still a chance!"
If so read on my dear friend.
In this post, we will explore some of the signs that show us the strengths and weaknesses of Cardano (ADA) over time compared to Bitcoin. In this way, we can continue our mini-series of exploring the relative strength of a secondary asset VS a primary asset, and from this do two very important things:
A) Understand probable outcomes based on the primary asset
B) Temper expectations and understand probable profit taking areas on the secondary asset.
TL:DR - Bitcoin has a much stronger structure relative to ADA and so ADA is much less likely to break all-time highs than bitcoin is.
Right, time to launch in. In a previous post, I compared the strength of Bitcoin vs the weakness of Cardano. In crypto as with any other 'correlated market', groups of assets tend to follow one primary driver or asset. For the precious metal market, if Gold goes up this usually means Silver goes up. Just like when America sneezed & the rest of the world's markets caught a cold during the 2008 US housing market crash, when Big Bad Boy Bitcoin moves the rest of the crypto market usually moves with it.
So what information can we gain from the fact that primary and secondary assets are locked in a delicate dance? Relative Strength.
Relative strength is defined pretty straightforwardly in trading - the amount of capital flowing in/out of an asset compared to the amount of capital flowing in/out of another asset.
If the primary asset increases 10% over the course of a month and the secondary asset increases 20%, that means that capital is favouring the secondary asset. For whatever reason, investors are happier to put their money into the secondary asset than the primary and so we can simply say: The secondary asset is acting stronger than the primary. Because trends in markets tend to continue longer than they don't, this means that going forward we can then say: probability will favour the secondary asset continuing to outperform the primary. The same is true in reverse: If a primary asset increases 10%, and a secondary asset only increases 5% then the relative strength of the secondary asset is weaker than the primary. Probability then favours the primary asset being stronger in the future and so you should trade according to this context.
Applying this very simple understanding of correlated assets to Bitcoin and Cardano we now need to scroll back in time. What we see is a story emerging of two intertwined partners whose strengths, compared to each other, ebbs & flow. Through this, we can answer our two very important points introduced above: (A) Undersatnd probable outcomes based on the primary asset, (B)Temper expectations and understand probable profit taking areas on the secondary asset.
Lets take a look at the chart for this post. Each number bellow correlates to the number on the chart. Bitcoin is represented through the Orange line while Cardano is the candlesticks:
1: Here we see Bitcoin trends bullish, reaching a high well before Cardano. As money flowed into Crypto it favoured the most well known of all coins but as profits began to be realised and capital flooded through the crypto space, it spread out from our primary asset to secondary assets. Cardano quickly caught up and while Bitcoin fiddled around with 57k for 3 months ADA paused with it, eventually exploding to $2. Nothing very special about this story, many alts experienced this same "alt season".
2: Now this is where things get interesting. While Bitcoin plummeted from point 1 (57k to 30k) it dragged the entire crypto space with it, yet unlike many weaker alts, as Bitcoin softly rallied from 32k to 51k between July and August 2021 Cardano again exploded. By breaking its all-time high before Bitcoin this showed us that capital was favouring Cardano and so its relative strength to Bitcoin was much stronger. We don't need to know why capital favoured Cardano - maybe the technology was maturing really well, or there was a lot of new developments - all we need to see is that it did. At this stage professional traders and retail alike had the technical evidence to buy ADA as probability heavily favoured such a strong asset continuing higher ESPECIALLY if the primary asset continued to show signs of strength.
3: And that is exactly what happened - Bitcoin went on to break its highs yet... wait.. what did Cardano do? It did nothing. This was the first sign of major weakness in the coin. For whatever reason, not only had it pulled back heavily when Bitcoin sold off in September but it failed to reactivate any bullish trend EVEN WHEN the primary asset was breaking all time high and the news/money flowing into crypto would have been at a peak. In this situation danger rose as, if money began flowing out of Bitcoin - the strongest, most well known of all crypto - then Cardano would suffer even more.
4: And that is what happened. Cardano failed to bounce as Bitcoin broke all-time highs and when the enthusiasm of this fell away Cardano fell even harder. Step 3 was an early warning sign that risk was rising with Cardano as its relative strength to the primary asset had been significantly undermined. Fast forward a few months later and we see this trend continuing today. With Bitcoin creating a higher high above 36k compared to the 30k of 2021, buyers have shown they are extremely eager to buy a more expensive Bitcoin than what it was worth back in 2021. Even after all the fear, uncertainty and doubt, the value of Bitcoin is considered by the market to be higher now than last year. Should the same conditions that led to Bitcoin breaking its all-time high in Nov 2021 emerge as the FUD subsides, then probability heavily favours Bitcoin breaking all time highs again.
But what about Cardano? Here buyers failed to step in, instead of waiting for LOWER prices than a year ago and breaking the major support of $1. While this certainly doesn't mean Cardano will keep dropping it does mean that we should note that ADA has shown extreme weakness, gauging the relative strength of the asset and saying "Well if Bitcoin heads on up from here, because the relative strength of Cardano is weaker than Bitcoin, it is much less likely to go as far (and break an all time high).
And with that we can answer (A) and "Understand probable outcomes based on the primary asset":
- The probable outcome is that Bitcoin if Bitcoin increases in value, it will likely increase more in value compared to ADA as the story of Bitcoin is one of strength and the story of ADA is one of initial strength but then weakness.
So now what about (B) - How does the above conclusion "temper expectations and help us understand probable profit taking areas on the secondary asset?"
As the relative strength of Cardano has shown itself to be weaker than Bitcoin, can you really expect Cardano to go to $4-5-10 (which would be a 200%+ increase in value at the very least) if Bitcoin doesn't increase the same, if not more, during the same time? Will we really see Bitcoin go to 200k? No. I mean, like, maybe but is it more probable than not? No its very improbable.
In trading, you can ONLY care about being consistently profitable - this means that, like a poker player, you MUST try to have probability on your side in all instances. That is the golden rule of trading, so why gamble on Bitcoin doing a x2/3/5 in value and becoming worth more than the entire Gold market and then take an additional gamble and hope the developers for Cardano surprise everyone and overtake ETH to be the dominant layer 2 solutions. Objectively both of those assumptions are extremely improbable.
And with that we now have our answer to (B) - Yes ADA can triple in value but it is extremely improbable and so major profit-taking should be done at crucial levels before that. In this case, look to the 61/78% fibs as these traditionally act as major resistances in assets that are trending bullish but pausing to take a breather. The technology of ADA is great, the potential is there but the timing is still a few years away. It took ETH over a decade to become what it is and so expecting the same from Cardano in a few years is just outright gambling and unrealistic.
With that in mind, seeing as we are well into the Crypto major bull cycle (having started back in 2020) we are unlikely to have enough time for Cardano to mature in technology to increase its value to higher than that of the speculation seen in May 2021.
As such, profit taking should be taken between the 61-78% fibs ($2.25 - $2.6).
If price breaks below $1 again while Bitcoin is accelerating towards all time highs then reducing risk or closing the position might be viable considering probability of seeing $0.16 - $0.4 significantly rises. Will there be short term bounces in this scenario? Ofcourse, but your money would be better served elsewhere.
Be patient, stoic and objective in your trades.
P
NOTE: I would not be here without the incredible lessons I have learned from my past teachers. I can not offer the same level of market coverage or substantial knowledge as these guys. I learnt what I know from MarcPMarkets/Goldbug1 at 'Greenbridge Investing' & Phil through 'Pro_Indicators' so go check them out.
PLEASE DO NOT USE THIS POST AS A CALL FOR ACTION. IF YOU ARE INEXPERIENCED, READ THIS AND DECIDE TO OPEN A TRADE THAT IS EXACTLY THE BEHAVIOUR I AM ENCOURAGING YOU NOT TO DO. Go away, learn technical analysis and probability trading, learn a strategy and practise that. Invest in yourself as you aren't investing otherwise.
Who is still holding that ADA because "there's still a chance!"
If so read on my dear friend.
In this post, we will explore some of the signs that show us the strengths and weaknesses of Cardano (ADA) over time compared to Bitcoin. In this way, we can continue our mini-series of exploring the relative strength of a secondary asset VS a primary asset, and from this do two very important things:
A) Understand probable outcomes based on the primary asset
B) Temper expectations and understand probable profit taking areas on the secondary asset.
TL:DR - Bitcoin has a much stronger structure relative to ADA and so ADA is much less likely to break all-time highs than bitcoin is.
Right, time to launch in. In a previous post, I compared the strength of Bitcoin vs the weakness of Cardano. In crypto as with any other 'correlated market', groups of assets tend to follow one primary driver or asset. For the precious metal market, if Gold goes up this usually means Silver goes up. Just like when America sneezed & the rest of the world's markets caught a cold during the 2008 US housing market crash, when Big Bad Boy Bitcoin moves the rest of the crypto market usually moves with it.
So what information can we gain from the fact that primary and secondary assets are locked in a delicate dance? Relative Strength.
Relative strength is defined pretty straightforwardly in trading - the amount of capital flowing in/out of an asset compared to the amount of capital flowing in/out of another asset.
If the primary asset increases 10% over the course of a month and the secondary asset increases 20%, that means that capital is favouring the secondary asset. For whatever reason, investors are happier to put their money into the secondary asset than the primary and so we can simply say: The secondary asset is acting stronger than the primary. Because trends in markets tend to continue longer than they don't, this means that going forward we can then say: probability will favour the secondary asset continuing to outperform the primary. The same is true in reverse: If a primary asset increases 10%, and a secondary asset only increases 5% then the relative strength of the secondary asset is weaker than the primary. Probability then favours the primary asset being stronger in the future and so you should trade according to this context.
Applying this very simple understanding of correlated assets to Bitcoin and Cardano we now need to scroll back in time. What we see is a story emerging of two intertwined partners whose strengths, compared to each other, ebbs & flow. Through this, we can answer our two very important points introduced above: (A) Undersatnd probable outcomes based on the primary asset, (B)Temper expectations and understand probable profit taking areas on the secondary asset.
Lets take a look at the chart for this post. Each number bellow correlates to the number on the chart. Bitcoin is represented through the Orange line while Cardano is the candlesticks:
1: Here we see Bitcoin trends bullish, reaching a high well before Cardano. As money flowed into Crypto it favoured the most well known of all coins but as profits began to be realised and capital flooded through the crypto space, it spread out from our primary asset to secondary assets. Cardano quickly caught up and while Bitcoin fiddled around with 57k for 3 months ADA paused with it, eventually exploding to $2. Nothing very special about this story, many alts experienced this same "alt season".
2: Now this is where things get interesting. While Bitcoin plummeted from point 1 (57k to 30k) it dragged the entire crypto space with it, yet unlike many weaker alts, as Bitcoin softly rallied from 32k to 51k between July and August 2021 Cardano again exploded. By breaking its all-time high before Bitcoin this showed us that capital was favouring Cardano and so its relative strength to Bitcoin was much stronger. We don't need to know why capital favoured Cardano - maybe the technology was maturing really well, or there was a lot of new developments - all we need to see is that it did. At this stage professional traders and retail alike had the technical evidence to buy ADA as probability heavily favoured such a strong asset continuing higher ESPECIALLY if the primary asset continued to show signs of strength.
3: And that is exactly what happened - Bitcoin went on to break its highs yet... wait.. what did Cardano do? It did nothing. This was the first sign of major weakness in the coin. For whatever reason, not only had it pulled back heavily when Bitcoin sold off in September but it failed to reactivate any bullish trend EVEN WHEN the primary asset was breaking all time high and the news/money flowing into crypto would have been at a peak. In this situation danger rose as, if money began flowing out of Bitcoin - the strongest, most well known of all crypto - then Cardano would suffer even more.
4: And that is what happened. Cardano failed to bounce as Bitcoin broke all-time highs and when the enthusiasm of this fell away Cardano fell even harder. Step 3 was an early warning sign that risk was rising with Cardano as its relative strength to the primary asset had been significantly undermined. Fast forward a few months later and we see this trend continuing today. With Bitcoin creating a higher high above 36k compared to the 30k of 2021, buyers have shown they are extremely eager to buy a more expensive Bitcoin than what it was worth back in 2021. Even after all the fear, uncertainty and doubt, the value of Bitcoin is considered by the market to be higher now than last year. Should the same conditions that led to Bitcoin breaking its all-time high in Nov 2021 emerge as the FUD subsides, then probability heavily favours Bitcoin breaking all time highs again.
But what about Cardano? Here buyers failed to step in, instead of waiting for LOWER prices than a year ago and breaking the major support of $1. While this certainly doesn't mean Cardano will keep dropping it does mean that we should note that ADA has shown extreme weakness, gauging the relative strength of the asset and saying "Well if Bitcoin heads on up from here, because the relative strength of Cardano is weaker than Bitcoin, it is much less likely to go as far (and break an all time high).
And with that we can answer (A) and "Understand probable outcomes based on the primary asset":
- The probable outcome is that Bitcoin if Bitcoin increases in value, it will likely increase more in value compared to ADA as the story of Bitcoin is one of strength and the story of ADA is one of initial strength but then weakness.
So now what about (B) - How does the above conclusion "temper expectations and help us understand probable profit taking areas on the secondary asset?"
As the relative strength of Cardano has shown itself to be weaker than Bitcoin, can you really expect Cardano to go to $4-5-10 (which would be a 200%+ increase in value at the very least) if Bitcoin doesn't increase the same, if not more, during the same time? Will we really see Bitcoin go to 200k? No. I mean, like, maybe but is it more probable than not? No its very improbable.
In trading, you can ONLY care about being consistently profitable - this means that, like a poker player, you MUST try to have probability on your side in all instances. That is the golden rule of trading, so why gamble on Bitcoin doing a x2/3/5 in value and becoming worth more than the entire Gold market and then take an additional gamble and hope the developers for Cardano surprise everyone and overtake ETH to be the dominant layer 2 solutions. Objectively both of those assumptions are extremely improbable.
And with that we now have our answer to (B) - Yes ADA can triple in value but it is extremely improbable and so major profit-taking should be done at crucial levels before that. In this case, look to the 61/78% fibs as these traditionally act as major resistances in assets that are trending bullish but pausing to take a breather. The technology of ADA is great, the potential is there but the timing is still a few years away. It took ETH over a decade to become what it is and so expecting the same from Cardano in a few years is just outright gambling and unrealistic.
With that in mind, seeing as we are well into the Crypto major bull cycle (having started back in 2020) we are unlikely to have enough time for Cardano to mature in technology to increase its value to higher than that of the speculation seen in May 2021.
As such, profit taking should be taken between the 61-78% fibs ($2.25 - $2.6).
If price breaks below $1 again while Bitcoin is accelerating towards all time highs then reducing risk or closing the position might be viable considering probability of seeing $0.16 - $0.4 significantly rises. Will there be short term bounces in this scenario? Ofcourse, but your money would be better served elsewhere.
Be patient, stoic and objective in your trades.
P
NOTE: I would not be here without the incredible lessons I have learned from my past teachers. I can not offer the same level of market coverage or substantial knowledge as these guys. I learnt what I know from MarcPMarkets/Goldbug1 at 'Greenbridge Investing' & Phil through 'Pro_Indicators' so go check them out.
PLEASE DO NOT USE THIS POST AS A CALL FOR ACTION. IF YOU ARE INEXPERIENCED, READ THIS AND DECIDE TO OPEN A TRADE THAT IS EXACTLY THE BEHAVIOUR I AM ENCOURAGING YOU NOT TO DO. Go away, learn technical analysis and probability trading, learn a strategy and practise that. Invest in yourself as you aren't investing otherwise.