Will Cardano shorting activity serve as 'rocket fuel' for an explosive rally？

Cardano (ADA) has recently experienced a significant surge in short-selling activity, marking the highest shorting versus longing ratio since September 2023, according to Binance data. This increase in short positions raises questions about whether this bearish sentiment could trigger a rebound rally for ADA.

According to data from Santiment on X (formerly Twitter), both Cardano and XRP (XRP) are experiencing significant shorting activity by traders following recent relief bounces.

“Cardano and XRP are a couple of the most notable altcoins that are seeing heavy trader shorting following relief bounces. This is a good sign for patient bulls, as liquidate shorts can effectively act as ‘rocket fuel’ for continued price rises.”

As of June 18, 2024, the Binance funding rate for ADA is -0.01374%, indicating strong bearish sentiment. A negative funding rate means short sellers are paying a premium to maintain their positions, reflecting high demand for short trades.

Such bearish sentiment can often precede a short squeeze, where short sellers are forced to buy back the asset, potentially driving up the price.

Long/Short ratios and market sentiment

Derivatives data from Coinglass shows that the long/short ratio for ADA is 0.9755. A ratio below 1 suggests more short positions than long positions, indicating bearish market sentiment.

However, Binances specific long/short ratio for ADA stands at 3, meaning there are significantly more long positions relative to shorts on this platform.

This discrepancy highlights a divided market sentiment, with Binance traders being more bullish compared to the broader market.

Further supporting this, Santiments analysis identified ADA and XRP as potentially undervalued. The Market Value to Realized Value (MVRV) ratio, which compares the market capitalization of an asset to the total realized value of all its coins in circulation, indicates ADA could be extremely undervalued.

With ADA hitting $0.40, Sssebi suggests a further drop to $0.38 is possible if Bitcoin continues to decline. The best approach, according to Sssebi, is to employ dollar-cost averaging (DCA) at these prices, anticipating a significant bounce once the current dip is over.

As I previously said, the dump wasn't over.$ADA just hit $0.40 and this is an incredible opportunity to load up your bags.

We could still see $0.38 if Bitcoin continues to dump, best way is to DCA at these prices.

Moreover, Cardano recently outlined plans for a significant step towards full decentralization as part of the “Chang” hard fork upgrade.The convergence of high short selling activity and strategic developmental advances could indeed transform the current bearish momentum into a catalyst for a robust bullish rally in ADAs market.