From November 18 to December 3, Cardano (ADA) saw an impressive price surge of 88.8%, peaking at $1.33—the highest it’s reached in nearly three years. This remarkable upward movement echoed a broader trend in the altcoin market, which grew from $1.16 trillion to $1.52 trillion in just two weeks.
Surge in Leveraged Positions
During this 15-day rally, there was an unprecedented spike in leveraged positions connected to futures contracts for ADA. As prices dipped to $1.16 on December 3, many traders began to wonder if this was a ripe buying opportunity, though they were also cautious of the risks, particularly the potential for cascading liquidations if prices fell further.
Throughout this period, Cardano stood out alongside other cryptocurrencies like Stellar (XLM), XRP, Algorand (ALGO), and IOTA, all making significant gains among the top 100 cryptocurrencies. Analysts have dubbed this trend the “dino coins rally,” as these altcoins have each experienced multiple cycles of notable price volatility before.
Futures Market Dynamics
One particularly notable aspect of Cardano’s performance was the 37% surge in open interest for ADA futures on derivatives exchanges, eclipsing the previous high set in October 2022. By December 3, the total exposure from leveraged long and short positions reached 932.5 million ADA, equating to around $1.2 billion.
In comparison, Binance Coin (BNB) recorded an open interest of $1.08 billion, even though its market capitalization is significantly higher than that of Cardano. Meanwhile, other altcoins like Solana (SOL), Dogecoin (DOGE), and Avalanche (AVAX) have yet to rebound to their all-time high open interest figures.
However, a rise in interest for ADA futures doesn’t clearly signal whether traders are leaning bullish or bearish; futures contracts often involve offsetting trades that can mask overall sentiment. A better indicator of trader attitudes is the monthly basis rate, or the premium on futures contracts. Healthy markets typically see annualized premiums in the range of 5% to 10%, but currently, Cardano’s monthly contracts boast a robust 17% premium over the spot price—an optimistic indication often witnessed during bull markets.
Assessing Cardano’s Demand
In periods of strong optimism, traders may face annualized costs as high as 60% when leveraging long positions, potentially complicating the outlook for longer-term investments. Equally important to consider are the perpetual contracts—these include fees enforced by exchanges on overly leveraged trades to control risk. Since crypto enthusiasts generally maintain a bullish viewpoint, long positions typically incur monthly fees that range from 0.5% to 2.1%.
The funding rate for ADA’s perpetual futures reached a high of 6% per month on December 2 and 3, which has since moderated to 2.2%. This drop suggests that the market initially faced excessive leverage, but traders later adjusted by adding more capital to mitigate risk.
Another critical metric for assessing Cardano’s ADA demand is its total value locked (TVL), which currently stands at $685 million. For context, Aptos boasts a TVL of $1.23 billion, while Avalanche leads with $1.53 billion. Notably, Cardano’s TVL hasn’t shown any significant growth in recent months.
Given the neutral-to-bullish funding rate and the elevated futures premium, it seems that the recent surge in ADA futures demand hasn’t been a primary driver behind the price increase. Thus, fears of cascading liquidations appear unfounded.
Source: Cointelegraph
