In mid-April, it looked like Cardano (CRYPTO: ADA) might be on the cusp of a breakout. At that time, it was trading around $0.45 and was up more than 80% for the year. However, over the past 30 days, the blockchain platform is down by almost 20%, and much of the springtime optimism seems to be fading.
So what needs to go right for Cardano to break through the $1 mark in 2023? Below are two factors that could affect its valuation.
The growth of Cardano's ecosystem
It might sound obvious, but the primary factor to watch is overall growth in the Cardano ecosystem. This is important because investors have continually complained that nothing is happening on its blockchain. In the minds of many investors, it's a "ghost chain." So Cardano absolutely has to show very specific numbers about its growth in order to convince these skeptics.
The good news is that Cardano puts out a weekly development report, so it's possible to see what's actually happening on the blockchain. In the past week, for example, 126 new projects launched on it. There are now more than 1,240 projects on Cardano, and some of them appear to be gaining ground with users and developers.
Image source: Getty Images.
For example, there has been growth in non-fungible token (NFT) marketplaces that specialize in Cardano NFTs. Loyal users obviously want to stay within the ecosystem when buying and selling NFTs. That's a positive sign that Cardano could be gaining market share (and mindshare) from Ethereum (CRYPTO: ETH), which has historically dominated the NFT market.
If the growth of new projects accelerates on a weekly basis, that could be evidence that Cardano is potentially deserving of a higher valuation. Moreover, keep an eye on other metrics, such as the number of active developers, that could signal it is gaining traction. At the end of 2022, for example, it surprised everyone by being ranked as the No. 2 blockchain in terms of active developers, trailing only Ethereum.
Growth in DeFi
While overall growth is good, of course, the one area that I'm zeroing in on is decentralized finance (DeFi). At the start of the year, Cardano made DeFi a priority. This is one area where it has always lagged behind market leaders such as Ethereum, so it is imperative that it finally show growth here. In the minds of many investors, DeFi is the key to valuing blockchain projects.
That's why I'm particularly impressed by some of the new projects within the Cardano DeFi ecosystem in 2023. An algorithmic stablecoin was launched at the end of January that is making it much easier for traditional finance players to move in and out of its DeFi ecosystem.
There are new decentralized exchanges offering the same type of functionality and liquidity as the top decentralized exchanges on Ethereum. And there are new product launches on the way, including a token that will make it possible to use Bitcoin (CRYPTO: BTC) on the Cardano blockchain.
The single best metric for tracking Cardano's growth in DeFi is total value locked (TVL). This metric tracks how much Cardano is "locked" into different DeFi protocols, such as those used for crypto staking.
As a general rule of thumb, the higher the number, the better. And Cardano's TVL has been soaring off the charts. While it still only ranks as the No. 18 blockchain in terms of TVL, that metric recently hit a 10-month high. If Cardano is able to move up the TVL chart, that would be a very bullish signal.
How high can Cardano soar?
For Cardano, the $1 price level is still an aggressive target, because that would require it to nearly triple in value from its current price. And getting to even higher levels is almost unthinkable for now. Some crypto influencers, caught up in the meme-coin hype, are now suggesting that it could soon smash through the $15 barrier. Others claim they are using ChatGPT to come up with $20 price predictions.
From my perspective, these ultra-Cardano bulls are relying too much on hope, and not enough on the underlying metrics. The all-time high for Cardano is just $3.10. That being said, I certainly think a $1 price target is within reach, as long as it continues to deliver growth to investors.
