ADA, or Cardano, is a proof-of-stake blockchain platform that aims to run smart contracts securely and efficiently. The native cryptocurrency of the Cardano network is also called ADA. Since its launch in 2017, ADA has seen significant price volatility, including a steep decline in value in 2022. There are several factors that help explain why ADA’s price has fallen so dramatically.
The broader crypto market downturn
The value of ADA, like most other major cryptocurrencies, is heavily tied to the overall state of the crypto market. 2022 saw a significant crypto bear market, with the total market capitalization of the crypto market falling from around $3 trillion in November 2021 to under $1 trillion in June 2022. This broad decline in crypto prices pulled the value of ADA down as well. Some of the factors that contributed to the 2022 crypto bear market include:
- Global economic uncertainty due to rising inflation and interest rates
- Regulatory crackdowns on crypto in China and elsewhere
- The collapse of the Terra/LUNA ecosystem
- Celsius and other major crypto companies freezing withdrawals
- Loss of risk appetite among investors
As a major cryptocurrency, ADA’s price fell in tandem with the overall crypto market slump in 2022. ADA hit its all-time high price of around $3 in September 2021 near the peak of the crypto bull run, but declined to under $0.40 by June 2022 as the bear market set in.
Critiques and competition
Another factor that has likely contributed to ADA’s falling price is growing skepticism and critiques about the Cardano network. Despite having robust capabilities on paper, some critics argue that Cardano has been slow to deliver functional smart contracts and real-world adoption so far. The network only launched smart contract functionality in 2021. Competing layer 1 blockchains like Solana, Avalanche, and Polkadot have gained significant traction among developers and users.
There are also technical concerns about Cardano’s ability to scale effectively. These critiques have led some investors to move funds out of ADA and into other cryptocurrencies that have concrete adoption and network activity. The loss of confidence in ADA’s technology and adoption trajectory could be playing a role in its declining valuation.
Delays in the Cardano roadmap
The Cardano network has a lengthy development roadmap planned, but there have been delays in rolling out key upgrades and features. For example, while smart contracts launched in 2021, native token functionality and scaling improvements are still in progress. The Vasil hard fork upgrade has also been postponed multiple times. These delays have led some investors to question if ADA’s technology can compete with faster-moving blockchains.
If Cardano cannot deliver on its promised capabilities in a timely manner, it risks losing relevance and falling further behind competitors. The inability to meet deadlines and roadmap milestones may be negatively impacting investor sentiment towards ADA.
Profit taking after rapid gains
In the lead up to its smart contract launch in 2021, ADA’s price surged from around $0.10 in July 2020 to over $2 in May 2021. Some of this rapid price increase was likely due to speculation and hype around the coming capability upgrade.
Once smart contracts actually launched on Cardano, some investors may have decided to take profits or sell out of their positions. This type of sell-off after major gains is common in crypto markets. With less hype and speculation supporting its valuation post-upgrade, ADA saw its price decline significantly from its peak above $3.
Lack of clear utility and adoption
While Cardano aims to eventually support decentralized finance (DeFi) applications, NFTs, games, and more, there is limited real-world adoption of these use cases so far. Critics argue that Cardano lacks a compelling value proposition and clear utility relative to other layer 1s. With little actual economic activity occurring on the network, ADA lacks tangible backing for its valuation.
Real-world adoption and utility drive long-term value for cryptocurrencies. Without growing ecosystem activity, ADA’s price has stagnated. Clear use cases beyond speculation have yet to materialize. This lack of obvious utility makes the currency vulnerable to bearish sentiment and price declines.
Distribution and selling by insiders
Cardano’s founding team, IOHK, and the Cardano Foundation control a significant portion of the total ADA supply. While the distribution schedule is public, the distribution and potential sale of ADA reserves by insiders may factor into ADA’s declining price.
If insiders are taking profits by selling ADA that was quickly distributed, this rising supply could suppress the token’s price, especially in the context of the broader bear market. Lack of transparency around reserve distributions may contribute to investor anxiety about ADA’s circulation.
Security concerns
Like any crypto network in its infancy, Cardano has faced questions around the security and auditability of its core protocol and smart contract functionality. Following the launch of smart contracts in 2021, some flaws and security gaps were identified by third-party auditors.
While these issues are typical for new platforms, they may raise doubts among some investors about entrusting assets to the Cardano network. Any perceived security weaknesses could hurt broader market confidence in ADA’s future viability and drive selling activity.
Perceptions of overvaluation
Due to the rapid rise in ADA’s price in 2021, some analysts argue that the token became highly overvalued relative to its actual development status and real utility. Even after its substantial price decline, ADA remains one of the most highly valued cryptocurrency projects.
Some traders may simply see ADA as overpriced relative to its fundamentals and technical roadmap. This can fuel momentum in downtrends as holders sell and short-sellers bet against what they view as an overvalued asset. The perception of ADA as disproportionately valued is difficult to overcome in a risk-off market.
Loss of development momentum
Some industry observers argue that Cardano’s core development team has lost steam. Competing layer 1s like Solana and Avalanche are releasing major upgrades and improvements at a faster pace that attracts developers.
With other options emerging, Cardano’s first-mover advantage has eroded somewhat. The lack of tangible progress on major roadmap goals may be harming broader perceptions of Cardano’s development trajectory. This impacts investor and trader sentiment towards ADA’s outlook.
Macroeconomic trends
Like most risky assets, ADA’s price is impacted by broader macroeconomic trends. Rising interest rates and the strong U.S. dollar have negatively impacted crypto valuations across the board. Some Federal Reserve policies are seen as unfavorable to crypto in the short term.
As an asset class, cryptocurrencies have tended to trade as risk-on, growth-oriented investments. In times of economic uncertainty, investors become more risk-averse and less amenable to speculative investments like crypto. Macro conditions have certainly contributed to dampening investor enthusiasm towards ADA.
Tech layoffs and hiring freezes
The waves of layoffs at major crypto companies like Coinbase, Gemini, and others have shaken confidence in the broader crypto job market. Development teams working on Cardano and other layer 1s have not been immune to hiring freezes and staff reductions.
Seeing key talent and developers shed from crypto projects can raise doubts about the future trajectory of platforms like Cardano. The tightening of human capital and resources may be reflected in ADA’s declining valuation based on deteriorating development prospects.
Lack of institutional investment
Institutional investment helped drive the massive crypto bull market in 2020 and 2021. However, institutions have been hesitant to enter crypto markets in 2022 amid high volatility and uncertainty.
With less capital flowing into crypto from large asset managers, pension funds, university endowments and the like, speculators have had less confidence to bid up crypto valuations. Flows of institutional money into ADA and crypto markets broadly may need to resume to support a turnaround.
ADA Price History
| Date | ADA Price |
| July 2020 | $0.10 |
| May 2021 | $2 |
| September 2021 | $3 (all-time high) |
| June 2022 | $0.40 |
Conclusion
ADA’s price has fallen significantly from its all-time high in September 2021 due to the confluence of multiple factors:
- The broader crypto market downturn
- Critiques of Cardano’s technology and execution
- Delays in Cardano’s roadmap
- Profit taking after rapid gains
- Lack of clear real-world utility
- Distribution of tokens by insiders
- Perceptions of overvaluation
- Slowing development activity
- Poor macroeconomic conditions
- Industry layoffs and hiring freezes
For ADA’s price to recover sustainably, Cardano will likely need to roll out functional upgrades and dApps that demonstrate real-world value and adoption at scale. As crypto markets broadly rebound and risk appetite returns, this would also act as a tailwind to restore positive momentum for ADA. But in the short-term, various bearish factors continue to weigh on ADA’s valuation.