Cardano (ADA) Price Prediction: Rally Back Towards $0.70 Possible?

Key Points

• Crypto markets are consolidating on Wednesday with Cardano within recent $0.435-0.475 ranges ahead of macro events.
• Cardano has formed a pennant in the last two months and technicians are eyeing a breakout.
• ADA/USD could be launched back towards $0.70, although a bearish scenario could see it fall back under $0.20.

Cryptocurrency markets are in a broadly consolidative mood on Wednesday as traders keep their powder dry ahead of key macro risk events later in the session. US ISM Services PMI survey data for June is set for release at 1400GMT and will offer a timely insight into the health of the US economy as recession calls grow.

Meanwhile, the minutes from last month’s ultra-hawkish Fed meeting where the bank hiked interest rates by 75 bps (the largest hike in 28 years) are scheduled for release at 1800GMT. Bitcoin was last trading just above $20,000, little changed over the course of what has been a choppy past few days, though still up about 4.0% this week.

Ethereum was last trading just under $1,150 and just above its 21-Day Moving Average, with gains of closer to 6.0% this week. Cryptocurrency market participants are currently observing trends in other asset classes like stocks, bonds and currencies and weighing up the implications for crypto.

Markets Pricing for Recession

There has been a powerful bid for safe-haven assets in the last few days as markets increasingly bet that the US and European economies are already in, or are close to slipping into recession. As a result, the US dollar has been the best-performing currency, with the Dollar Index (DXY) breaking out to fresh multi-decade highs near 1.07.

This is typically a headwind for USD-denominated crypto, just as it can be for other USD-denominated assets, as it makes them more expensive for purchase by foreign buyers. However, the bid for US bonds has sent yields tumbling, with the US 10-year now back to around 2.80% from nearly 3.5% as recently as mid-June. This lowers the so-called “opportunity cost” of holding non-yielding assets like crypto and commodities.

Bond markets are also flashing recession warnings, with the US curve inverted all the way out to the 10-year. The 2-year yield is currently at 2.84%, the 5-year at 2.82% and, as mentioned, the 10-year is closer to 2.80%. Yield curve inversion (defined as longer-term yields falling below shorter-term yields) has a track record of accurately forecasting a recession in the near future.

Commodities are also pricing in a recession. WTI futures are back below $100 per barrel from as high as the $120s as recently as mid-June. Bloomberg’s broader commodity index (BCOM) has fallen nearly 20% from its June highs above $138 to around $112 on Wednesday. Recessions typically mean lower demand for commodities.

Bullish for Stocks & Crypto?

For now, risky assets like stocks and crypto seem unsure how to react to increased recession risk. The kneejerk assumption might be that recession is bad for risk appetite. Indeed, this kind of thinking is evident in risk assets, with major US equity indices and most cryptocurrencies still only trading barely above their annual lows posted in June.

But the recent ramping up of recession bets has seen markets dial back on 1) long-term inflation expectations and 2) longer-term Fed tightening bets. 10-year break-even inflation expectations (essentially the market’s prediction for average CPI over the next 10 years) are around 2.25% on Wednesday, having been as high as 2.86% in June.

Recessions are typically deflationary as they result in reduced consumer demand for goods, which puts downwards pressure on prices. But recession fears are not the only thing compressing inflation expectations. US PCE inflation data for May showed signs that price pressures in the US have already peaked and are now easing, with the core metric hitting a six-month low on a YoY basis.

Given that markets are increasingly pricing in weaker growth/recession and lower inflation ahead, it makes sense that they have also moved to price in a less aggressive Fed rate hiking cycle. Money markets see the Fed’s benchmark lending rate peaking at around 3.25% in 2023, versus nearly 4.0% a few weeks ago.

If markets continue paring back on Fed tightening bets in the weeks ahead, even if this is due to increased recession bets, there is every possibility that this could support a rally in crypto/risky stocks (like tech). After all, Fed tightening bets amid sky-high inflation have been the primary driver of crypto/equity downside so far this year, not growth pessimism.

Cardano Consolidates, Eyes Key Long-term Pennant Breakout

Cardano has been in consolidation within thin ranges over the past few days. Ahead of key macro events this week (including the US jobs report on Friday), ADA/USD will likely remain capped below resistance around $0.475, where the 21DMA also resides. Meanwhile, ADA/USD may continue to find support from an uptrend linking the lows since the end of June, as well as above support in the form of the end-June $0.4350 low.

Things get more interesting when looking at Cardano on a longer time horizon. ADA/USD has been squeezing within a pennant structure since the start of May. The likelihood of a breakout is rising. Say the bullish scenario for stocks and crypto outlined above plays out. ADA/USD could see a break back towards June highs in the upper-$0.60s.

Of course, say this month’s inflation data hints at a nightmarish scenario of inflationary pressures continually rising despite slowing growth/recession. Stocks and crypto may well see further downside, which could coincide with ADA/USD breaking to the downside of the pennant. A swift test of annual lows around $0.40 would be likely. A break below that level could open the door to a run lower towards support levels from 2020 in the $0.15-0.18 area.