This out-of-favor cryptocurrency deserves a little more attention.
When Cardano (ADA -2.62%) was launched in October 2017, it initially attracted a lot of attention for three reasons. First, it was founded by Ethereum‘s (ETH -3.22%) co-founder Charles Hoskinson. Second, it used a peer-reviewed approach to evaluate new projects. Lastly, it aimed to be more scalable, secure, and sustainable than Ethereum.
Those catalysts propelled Cardano’s price from its opening trade of $0.02 to $1 shortly after its launch. In 2020 and 2021, it attracted more attention as its Shelley and Goguen upgrades added support for staking features and smart contracts for the development of decentralized apps.
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Those fresh tailwinds, along with the broader buying frenzy in cryptocurrencies, lifted Cardano to its all-time high of $3.10 on Sept. 2, 2021. But today, it trades at about $0.73. It shed more than three-quarters of its value as rising interest rates chilled the crypto market, its smart contracts failed to attract as many developers as Ethereum, and its cautious peer-reviewed approach to approving new projects inadvertently throttled the expansion of its own ecosystem.
That’s probably why Cardano’s price has declined about 20% this year as Bitcoin‘s (BTC -4.04%) price has risen about 27%. But should investors take the contrarian view and accumulate Cardano while the bulls are looking the other way? Let’s review four reasons it might actually be smart to buy Cardano before 2025 ends.
1. Hydra and Mithril could draw in more developers
Cardano partially deployed Hydra, its Layer 2 scaling solution which was aimed at easing the pressure on its main Layer 1 blockchain, during the past year. By deploying more “heads,” Hydra processes more of Cardano’s transactions off-chain so they don’t congest its main blockchain. Cardano plans to fully deploy more of those heads to support more decentralized finance (DeFi), gaming, and enterprise apps throughout the rest of the year.
Moreover, Cardano’s new Mithril protocol — which crunches all of the data across its blockchain into a single index — should further improve Cardano’s accessibility for its users and developers. These upgrades could boost Cardano’s speed and scalability, attract more developers, widen its moat against faster proof-of-stake (PoS) blockchains like Solana (SOL -4.70%)and generate more tailwinds for its native token.
2. Building a bridge to Bitcoin
In late June, Cardano’s developers launched Cardinal, a new smart contract bridge which facilitates the transfer of Bitcoin (BTC -4.04%) assets on Cardano’s blockchain. That upgrade will allow Bitcoin-backed stablecoins to be traded on Cardano, benefit from Bitcoin’s liquidity, and potentially support the expansion of its fledgling DeFi ecosystem.
3. Increased institutional interest
Cardano doesn’t attract as much institutional interest as Bitcoin or Ethereum. However, several large funds have been ramping up their exposure to Cardano, while the asset management giant Franklin Templeton launched its own Cardano nodes last month. Grayscale and Tuttle Capital Management also submitted their applications for Cardano exchange-traded funds (ETFs) earlier this year.
That institutional interest could increase after Cardano’s next governance upgrade, Voltaire, transforms its blockchain into a fully decentralized system governed by its own holders instead of its developers. That change could loosen its rigid peer-reviewed approach to expanding its ecosystem and ignite the development of more decentralized apps.
4. Interest rates should decline
Lastly, the broader crypto market should rally if the Federal Reserve reduces its benchmark interest rates. It has already cut rates three times in 2024, and most investors are expecting at least two more rate cuts this year. Cardano might not benefit as much as Bitcoin from those reductions, but that rising tide might lift all of those crypto boats.
But have realistic expectations about Cardano’s near-term growth
Some investors expect Cardano to rise to $1-$2 a token by the end of this year. That would represent a solid 37% to 174% gain from its current price, but it might disappoint investors who expected it to generate even bigger near-term returns. Looking further ahead, Cardano arguably has more irons in the fire than other smaller altcoins — so investors who accumulate it right now might be well rewarded over the long term as it scales up its network and attracts even more developers.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.
