As of mid-April, Cardano (ADA 4.19%) was up nearly 80% for the year, and all signs were flashing green for crypto investors. But then came the Securities and Exchange Commission's (SEC) crypto crackdown in June. Now, Cardano is just struggling to reassure investors that everything is going to be OK. Currently, the token is trading at just $0.33, almost 90% below its all-time high of $3.10. For the year, it is now up just 35%, making it a laggard compared to most top cryptos.
Obviously, for Cardano to triple in value from its current price and hit the $1 mark, a lot has to go right. Here are three key catalysts that could help push it to that level.
The SEC crackdown
Let's start with the SEC crackdown on crypto. In early June, the regulator filed lawsuits against two top cryptocurrency exchanges, Binance (BNB 3.29%) and Coinbase Global (COIN +3.25%). In those lawsuits, the SEC specifically named Cardano as one of the "unregistered securities" that these exchanges were improperly offering to their customers. This came as a surprise to just about everyone, and investors immediately started dumping Cardano. While its price has recovered somewhat in July, there is still a lot of fear, uncertainty, and doubt swirling around the crypto.
For the token to hit the $1 mark, there needs to be some sort of resolution of this issue. As of now, the SEC has not filed a direct enforcement action against Cardano, which is a positive sign. And Cardano has indicated that it's willing to work with the SEC. However, simply saying "we're not a security" is not enough. Case in point: Robinhood Markets (HOOD +4.49%) delisted Cardano on June 27, in part to avoid having to deal with this issue.
DeFi growth
The second big catalyst for the crypto would be continued growth in the decentralized finance (DeFi) market. Its aggressive growth in this area at the beginning of the year is what helped to kick off its early 2023 rally. Until this year, Cardano had been a non-player in the DeFi arena, which was a major knock against this blockchain. Simply put, it was difficult to justify a huge valuation for the token if there was nothing happening in DeFi on its blockchain.
But now things do appear to be happening in DeFi. There have been new product launches, such as a new stablecoin for the Cardano ecosystem. There has been growth in decentralized exchanges for trading cryptos. And there has been the launch of new DeFi projects that make use of new smart contract functionality on the Cardano blockchain. And all of that has helped to boost key DeFi metrics that investors use to evaluate crypto projects. That type of progress would need to continue for the token to head toward $1.
New innovations
Finally, Cardano would need to keep unveiling innovations that make it more attractive for users and developers. Cardano is a Layer 1 blockchain, meaning that its nearest competitor is Ethereum (ETH 3.46%). So it needs to introduce innovations that demonstrate that it is a faster, cheaper, and better alternative to Ethereum.
Image source: Getty Images.
Thus, one Cardano innovation that I'm keeping an eye on is Hydra Pay, which is still in test mode. It's been getting a lot of buzz recently because it promises to revolutionize Web3 micropayments. Basically, if you want to send a tiny amount of money to someone else via a direct peer-to-peer transaction, it will be possible to do that instantly and at almost zero cost using Hydra Pay. The payment service is powered by Hydra, the super-fast Layer 2 scaling solution introduced by Cardano in May.
Can Cardano deliver?
From my perspective, Cardano would need to deliver on all three of these fronts to merit a much higher valuation. Moving ahead in areas such as DeFi or Web3 micropayments is the easy part. The hard part will be figuring out what to do in regard to the issues posed by the SEC. Maybe I'm overreacting, but the SEC's assertion that Cardano is an unregistered security could make the crypto toxic for some investors. There's an enormous amount of regulatory risk involved here. Until U.S. lawmakers enact a comprehensive framework for regulating crypto, that risk is not going away.
CRYPTO: ADA
Key Data Points
The good news, if you want to call it that, is that Cardano seems to be carrying on business as usual. Weekly development reports are still coming out, work is being done on improving the blockchain, and transaction activity is starting to rise again after a brief dip in early June. Over the short term, I'm mixed on Cardano's prospects, and that's mostly due to the SEC. But over the long term, I'm bullish on its potential.
