Caradano’s native gas payment token, ADA, was hit hard in early June when the U.S. Securities and Exchange Commission (SEC) deemed it a security in a lawsuit against Binance and Coinbase.

The lawsuit caused the price of ADA to drop 42.5% from $0.37 to a two-year low of $0.21 in a matter of days.

Additionally, the token faced further downward selling pressure due to the delisting of US trading apps Robinhood and eToro.

Behind the scenes, however, the network has been making progress following a scalability upgrade in May, with decentralized finance (DeFi) activity picking up.

Technical and on-chain analysis of the coin also shows potential for a positive recovery.

Cardano’s DeFi ecosystem is thriving

Over the years, Cardano has received some criticism for its constant delays and network updates.

In an interview with Cointelegraph, Cardano founder Charles Hoskinson attributed these setbacks to “betting on the wrong technology and being too ambitious with a roadmap,” acknowledging that 85% of the initial roadmap is already complete.

Nonetheless, network activity has increased following the launch of the long-awaited scalability upgrade Hydra in the first week of May 2023.

Total fees paid by Cardano surged to a one-year high following the upgrade before collapsing amid the SEC lawsuit. However, the activity has been on a sustained upward trend for the past few weeks.

Total fees paid on the Cardano network.Source: Messari

According to data from DefiLlama, the total amount of ADA deposited in Cardano DeFi applications has grown strongly, reaching twice the peak during the 2021 bull market. Since the Hydra upgrade in May, the Cardano decentralized exchange has also seen a significant increase in transaction volume.

Hydra is a layer 2 scaling solution designed to increase the throughput and scalability of the Cardano blockchain by processing transactions on sidechains.

TVL and DEX volumes on Cardano. Source: DefiLlama

In addition, a report from the Jarvis laboratory set up ADA is one of the most “decentralized L1s” according to the Nakamoto coefficient, which measures the smallest number of entities that collectively control 33.33% of all tokens in the network.

A higher degree of decentralization will benefit Cardano in deciding whether it is a security in the United States.

“Cardano is not dead, but is very much alive, energized, and ready for the next bull run,” Cody, a pseudonymous analyst at Jarvis Labs, wrote in the note.

related: The best blockchain ‘doesn’t exist’ – Cardano Foundation exec

ADA Price Analysis

On-chain analytics firm Santiment recorded “Lots of low-priced sales” in the first week of July as prices rallied towards the $0.30 resistance level.

Analysts at Santiment added that profit booking levels appear to be oversold, “making a rebound more likely”.

Funding rate data for CoinGlass perpetual swap contracts shows that most traders hold short ADA positions, betting on a downturn in the wake of the regulatory crackdown. Massive sell-offs and negative sentiment could trigger price contrarian gains in the short to medium term.

ADA funding rate for perpetual swap contracts. Source: CoinGlass

Technically, the ADA/USD pair has formed higher lows after bottoming out around $0.21 in June, suggesting buyers are picking up the coin on dips. If buyers are able to turn the $0.30 horizontal resistance into support, it will confirm a positive trend.

ADA/USD daily price chart. Source: TradingView

The ADA/BTC pair is showing signs of a potential bottom as its weekly Relative Strength Index indicator dipped into oversold territory and the pair tested long-term support and resistance at 0.00000956 Bitcoin (BTC).

If the buyers are successful, the pair is poised to surge 60% in price towards the 0.00001548 BTC support level.

ADA/BTC weekly price chart. Source: TradingView

ADA has been facing headwinds due to SEC lawsuits, the delisting of U.S. trading apps, and negative sentiment, but there are signs the network is still making progress. If the technology continues to improve, ADA may see a positive recovery in the future, supported by on-chain growth.

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