While Cardano (CCC:ADA-USD) has a number of strengths that give it some potential over the long-term, it’s facing multiple challenges in both the near and more distant future.
As a result, like all cryptocurrencies, Cardano’s price is likely to tumble for at least the next six months.
For the last few months, I have predicted that cryptos would sink as government stimulus decreases. Specifically, I theorized that, with the federal unemployment bonuses poised to be terminated and the government stimulus payments fading further into the past, millennials would sharply curtail their purchases of cryptos.
More recently, I began to realize that the expiration of Washington’s rent forbearance order earlier this month would also hinder millenials’ ability to buy cryptos.
I had previously expected cryptos to fall further and sooner than they have. Nonetheless, the recent price action of cryptos has, in my opinion, supported my thesis.
Since the expirations of the unemployment bonus and the rent forbearance order (on Sept. 6 and Aug. 26, respectively), cryptocurrencies in general and Cardano in particular have struggled.
Cardano Lumped Into Washington’s Crypto Scrutiny
Since Sept. 7, Bitcoin (CCC:BTC-USD) has fallen about 15%, and Cardano has slumped nearly 20% since Sept. 3. while Ethereum (CCC:ETH-USD) has retreated about 15% since Sept. 5.
Meanwhile, in-line with my previous predictions, Washington has begun to crack down on cryptos. Specifically, the Senate included a provision increasing the reporting requirements for crypto brokers. I’m far from a tax expert, but I imagine that the legislation, which is expected to result in brokers paying significantly more tax, could very well have a meaningful negative effect on the sector.
SEC Chairman Gary Gensler and Treasury Secretary Janet Yellen haven’t been friendly toward cryptos, with Gensler determining that cryptos are securities, not currencies, and Yellen calling Bitcoin “extremely inefficient.” And the less-than-kind comments of Sen. Elizabeth Warren toward cryptos suggests that leading progressives aren’t going to ride to their rescue.
Given these points, I still expect cryptos, including Cardano, to continue taking blows from Washington.
‘Bullish’ News on Cryptos Isn’t Really So Bullish
Various entities are not buying cryptos as traditional investments, and they are definitely not doing so to actually use them as currencies. Rather, they’re buying relatively small amounts of cryptos in order to get free advertising and ingratiate themselves with the many millennials who have great affections for the cryptos.
For example, Steve Cohen’s Point 72 hedge fund last month made headlines by leading a $21 million funding round in Messari ” which was described as as a “crypto analytics firm.” For Cohen, a multi-billionaire who owns a hedge fund with well over $100 billion of assets under management, spending around $10 million -$15 million to get loads of favorable press coverage is a “no-brainer.” Importantly, Cohen owns the New York Mets baseball team, which would greatly benefit from more millennial support.
Similarly, what does the rather poor, small Central American country of El Salvador have to lose by making Bitcoin legal tender in a bid to attract American tourists?
Bottom Line on Cardano
Cardano has some important strengths that could come into play for ADA-USD in the longer term.
Like Ethereum, Cardano enables “smart contracts.” As I pointed out in a previous column, multiple large entities are actually using Ethereum because of its tight security and ease of use.
Because Cardano was launched by a co-founder of Ethereum and the two cryptos reportedly have much in common, Cardano could also be embraced by large companies and governments. But, on the other hand, Ethereum obviously has a significant head start over its younger sibling when it comes to attracting users.
But with millennials’ purchasing power ebbing and the U.S. government seemingly seeking to undermine cryptocurrencies, now is a good time to sell, not buy, Cardano.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.
