Last Fed rate cut sent Cardano crashing 57% – what about now?

Cardano dropped 57% when the Federal Reserve cut interest rates in 2019. With another rate cut on the horizon, the cryptocurrency is facing a similar setup that could lead to a significant decline.

Cardano Prepares for a Decline in September

In May 2019, the Fed began its first interest rate cut, lowering them from 2.42% to 2.39%. Rates were much lower than they are today, and the national debt was $22 trillion. Today, the debt has risen to nearly $35 trillion, and interest rates are now 5.33%, more than double 2019 levels.

When prices began to decline in 2019, Cardano experienced a sudden drop. After a brief recovery, the downtrend continued for several months until early 2020. An uptrend later emerged, but the market downturn during the COVID-19 pandemic coincided with further price drops. While there is uncertainty about the exact correlation between price drops and cryptocurrency declines, Cardano and the broader market have seen a clear decrease in value.

A similar scenario could play out today. Cryptocurrencies have shown correlations with traditional finance in the past, including during the 2019 interest rate cuts. The upcoming Fed meeting is likely to result in a rate cut based on CME DataIf the market follows the 2019 pattern, Cardano could face a decline that lasts for several months, possibly until the end of the year, before recovering in early 2025. A repeat of the previous trend could push the Cardano price to around $0.15.

Additionally, September has often proven to be a tough month for both stocks and cryptocurrencies. In September 2020, during the halving, Cardano also experienced a downtrend. Coupled with the current 10% decline since the start of this month, these factors could push Cardano towards a deeper decline in the coming weeks and months below the 2022 support line at $0.2349.

Cardano Bearish Momentum Grows with SRSI, MACD, and VRVP

Many traders focus on short-term moves, but taking a step back to get a longer-term view can give a better sense of the bigger picture. Cardano’s stochastic relative strength index (SRSI) and monthly moving average convergence divergence (MACD) are sending warning signs that shouldn’t be ignored, and both paint a rough picture of ADA.

The SRSI tracks momentum by looking at the range of an asset’s price over time. The scale ranges from 0 to 100, with anything below 20 indicating oversold conditions. Since March 2024, the SRSI has been sliding, and is now approaching oversold territory.

Meanwhile, the MACD indicator is showing similar bearish oscillations. On the monthly chart, the MACD line has already crossed below the signal line, indicating bearish pressure. The histogram showing the gap between the two lines is about to turn red, also indicating increasing bearish momentum.

Along with the bearish signals from the stochastic RSI and the moving average convergence divergence, the Visible Range Volume Profile (VRVP) adds further downside pressure to the outlook. The VRVP shows where most of the trading volumes have occurred at different price levels. In the case of Cardano, the volume bars within the current price range are very thin, indicating weak support. The largest volume bar starts at the $0.15 level, indicating a strong support area there. Below the current price, there is a gap in the volume profile, which means that if Cardano continues to decline, there will be little trading activity to slow the decline until it reaches the $0.15 area.

Is Cardano’s 2022 support line strong enough to hold out?

Despite the bearish indicators, there are two factors that could prevent Cardano from making a sharp decline. Currently, the price is sitting inside the overall golden Fibonacci pocket, drawn from the all-time low to the March 2024 high. This area, between $0.2951 and $0.3204, has acted as support for now. However, when looking at other Fibonacci retracements from different points, ADA has already fallen below the 78.6% retracement in each of them. This could raise doubts about the strength of the current golden pocket, as there is a possibility that it may not hold in the long run.

However, the strongest support level lies at $0.2349, a level that was respected during the 2022 bear market. But with ADA currently at around $0.315, a drop to this support would still represent a 25% decline, which would be far from ideal.

Strategic Considerations

In our view, there could be a rally before the Fed meeting on September 18. However, after that, ADA is likely to face a downtrend for two to three months until the Fed slows down the pace of rate cuts. A more cautious strategy would be to wait for ADA to break below the $0.2951 golden pocket before shorting. This offers a safer entry point compared to shorting right now, as Cardano could see a short-term uptrend while holding the golden pocket. If the price breaks below this level, shorting to $0.2349 becomes a more calculating move.