The latest rally in the Cardano (ADA) market has activated a classic surly pattern that threatens to lower its prices by as much as 15%.

Dubbed as a rising wedge, the textbook design forms when the toll consolidates betwixt upwardly sloping resistance and support trendlines. Its occurrence typically prompts a bearish reversal, confirmed past a voluminous suspension below the lower trendline.

The turn a profit target during such a negative move comes to be equally below as the maximum wedge height.

ADA/USD currently ticks all the boxes for forming a falling wedge pattern, equally shown in the chart below. The pair at present awaits a negative breakdown below its wedge support trendline, which may prompt a correction toward the 50-4H exponential moving average (50-4H EMA; the purple wave) around $2.45.

Cardano 4H price nautical chart featuring a potential rising wedge formation. Source: TradingView

The said wedge target is a little over fifteen% below the electric current ADA/USD rates (~$two.xc).

"Once the target zone has been reached, it will show if Cardano manages to bounce from in that location or simply sets up for farther continuations to the downside," corroborated Vince Prince, an independent marketplace analyst, in a split up report based on the same ascent wedge pattern.

Prince's wedge target for the Cardano token was near $2.24.

Bulls eyeing massive ADA adoption

The downside outlook appeared after Cardano surged past more than 100% quarter-to-engagement, hitting a record loftier of $2.97 on the Binance exchange on Monday.

Traders raised their bids for ADA/USD later on Cardano creator Charles Hoskinson finalized integrating a long-awaited smart contracts characteristic on the Cardano blockchain via the "Alonzo" upgrade slated for Sept. 12.

The news raised hopes that Cardano would directly rival Ethereum, the biggest smart contracts platform, which has been grappling with network congestion and higher fees. As a outcome, need for Cardano's native asset, ADA, has been steadily growing.

Cryptocurrency market analyst Lark Davis noted that if Cardano manages to reach the same marketplace cap every bit Ether's, ADA'due south price will surge to $10 per token. But he reminded that there were more players in the smart contracts ecosystem waiting to dethrone Ethereum.

"If information technology was just Ethereum vs Cardano it would exist a much clearer battle of platforms," Davis tweeted.

"But nosotros also have BSC, Polygon, Solana, Terra, Barrage, Zilliqa, Elrond, Polkadot, and many others looking for market share. Many of whom are much farther ahead in terms of ecosystem building."

The analyst added that ADA/USD might encounter a pullback after Cardano's smart contracts launch, citing the popular "purchase the rumor sell the news" effect. He advised potential ADA buyers to wait for a correction.

At least one technical indicator besides pointed toward an imminent correction in the Cardano marketplace. Dubbed equally the relative forcefulness alphabetize, the momentum indicator returned a reading above 70, noting that ADA'south current valuation exceeds its demand.

ADA/USD daily relative strength indicator reading is 82.91. Source: TradingView

Bitcoin correlation

Another catalyst that appeared to have played a fundamental function in sending ADA/USD rates higher is Bitcoin.

The benchmark cryptocurrency typically acts equally a trendsetter for rivaling digital assets. When it moves higher, most summit altcoins follow suit; similarly, its decline prompts sell-offs across the rest of the crypto market.

Data provided by Crypto Watch shows that the one-yr correlation efficiency between Bitcoin and Cardano is 0.twoscore. This ways in that location is a 40% likelihood that BTC/USD and ADA/USD will move in the aforementioned management. Interestingly, Cardano's correlation with Bitcoin is also one of the everyman among altcoins.

Bitcoin correlation with altcoins, including Cardano. Source: Crypto Watch

However, the Bitcoin–Cardano correlation on a 30-day period comes to exist 0.53. Meanwhile, the past 24 hours accept revised the correlation to 0.60, showing that ADA/USD prices remain influenced by BTC/USD's interim toll trends.

In detail, Bitcoin's price has likewise rallied in the tertiary quarter, upwardly more than than 47% at the time of writing. Information technology recently reached a three-month high of $50,505 on the Coinbase substitution and — like Cardano — started consolidating sideways well-nigh its local peak.

Related: Cardano price eyes $3, but ADA chart fractal hints at a potential 40% correction

Only Dmitry Machikhin, CEO of Pressman Capital letter Investment Fund, noted that Cardano is forming a league of its own, given its lower correlation with Bitcoin compared to other altcoins. As a consequence, the ADA/USD exchange rates might keep on climbing for the remainder of 2022 irrespective of Bitcoin's price trends.

He told Cointelegraph:

"Despite logging a new best high at $2.97, a yearly close of $v cannot be ruled out irrespective of the direction of Bitcoin or other prominent altcoins."

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your ain inquiry when making a decision.