Down 33% in 3 Months, Is Cardano Still a Buy With $1,500?

Cardano's (ADA -1.16%) price fell by 33% during the last three months, and it's also been a laggard compared to its larger competitors in the cryptocurrency sector during the past three years, falling 9% while Bitcoin is up roughly 115%.

So, is this dip a buying opportunity or a warning sign that there's something to avoid altogether, even with a smaller investment on the scale of about $1,500? Let's start by examining the investment thesis for this coin and whether it's succeeding at what it set out to do.

Can this coin compete?

In a nutshell, Cardano was created by one of the co-founders of Ethereum (ETH -0.17%) with the intent of making a chain that would have better technical characteristics as a result of a deliberate, consensus-driven, and heavily peer-reviewed technology development process in contrast to Ethereum's supposedly more disorganized approach. Much like Ethereum, Cardano aims to become an attractive place to launch decentralized finance (DeFi) apps, among other types of projects. By way of its better technology, it could thus offer a superior user experience, including lower gas (user) fees and faster transaction times, at least in theory.

In practice, Cardano is indeed cheaper and faster to use than Ethereum, but that isn't actually as relevant for its potential as an investment as its holders may hope. Larger players like Solana (SOL -2.54%) are also cheaper and faster than Ethereum and Cardano. Therefore, even if Cardano can take some capital share from Ethereum, it probably won't ever gain much traction against Solana unless things change significantly.

However, it might not be able to take much of a share from Ethereum in the long term, either. While Ethereum's industry-leading smart contract capabilities keep users coming back to develop new projects on the chain, including for emerging segments like artificial intelligence (AI) infrastructure and on-chain AI agents, Cardano's smart contracts are coded in a derivative of a less common programming language. So, the chain is largely missing out on the growth that it might get if it were more competitive on that front, as there are not as many people who are skilled in the necessary technical areas.

This new catalyst could save the day, but it isn't guaranteed

These issues make it hard to see how Cardano could be a winner if purchased today. Nonetheless, there could be a significant catalyst that drives its price up over the long term.

Per the president, if a U.S. national cryptocurrency reserve is ever created, the coin would be included. Therefore, the U.S. government would be obligated to hold some of it, perhaps as mandated by law. It might even be legally compelled to buy the coin on the market if its reserves fell too low. But it's far more likely that if a crypto reserve is ever created, it will just contain coins seized or otherwise acquired by the government via legal action rather than purchasing activity.

Is Cardano still a buy, considering its disposition against its major competitors and the chance of a crypto reserve happening? No, not really. The recent price action has nothing to do with it.

The issue is that there isn't a convincing set of reasons that describes why it's a better purchase than Solana, a much larger (and thus perhaps safer or at least less volatile) player that also develops its core blockchain technology at a somewhat faster pace. Even relative to Ethereum, the very currency Cardano was supposedly designed to beat, it isn't obviously gaining ground, and it's getting left behind in the emerging AI segment altogether, at least so far.

Including Cardano in the crypto reserve won't make up for those shortcomings, even if it might temporarily pump the price up.