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- ADA faced a 20% fall amid broader market pressures and internal ecosystem struggles.
- The U.S. Federal Reserve’s policy shift could provide a lifeline, easing liquidity and boosting Cardano’s recovery.
Cardano [ADA] has taken a hit, with its price plunging nearly 25% in the past week, leaving many traders on edge. Yet, just as the market sentiment seems to be in the dumps, a potential game-changer has emerged.
The U.S. Federal Reserve has announced it will end its quantitative tightening (QT) policy by June, signaling a shift in liquidity conditions.
This move could have significant implications for risk assets like ADA, potentially setting the stage for a price surge.
Cardano: Price falls by 25%
ADA’s recent 25% decline can be attributed to several factors.
Macroeconomic pressures have played a significant role; notably, President Donald Trump’s recent tariff threats against major U.S. trading partners led to a sharp downturn in the market, with Bitcoin [BTC] dropping 7% and Ethereum [ETH] over 20%.
This broader market sell-off adversely affected ADA as well.
Additionally, market conditions specific to Cardano have contributed to the decline.
A significant decrease in daily DEX trading volume — from $31.3 million on the 12th of December 2024, to $7 million on the 6th of February 2025 — reflects waning interest and participation in ADA trading.
Moreover, the TVL in the Cardano network has dropped to $355.7 million recently from $701.4 million on December 3, 2024, indicating reduced engagement in its ecosystem.
The U.S. Federal Reserve’s policy shift
The Federal Reserve’s quantitative tightening policy, initiated to reduce its balance sheet by selling securities and curbing liquidity, has been a significant factor influencing financial markets over the past year.
QT has tightened liquidity conditions across the board, putting pressure on risk assets, including Cardano.
“To ensure a smooth transition, the FOMC slowed the pace of decline of its securities holdings in June 2024 and intends to stop reductions in its securities holdings when reserve balances are somewhat above the level that the FOMC judges to be consistent with ample reserves.”
In June 2024, the Federal Open Market Committee (FOMC) slowed the pace of QT, signaling its intention to end securities reductions when reserve balances reach a level “somewhat above” what is deemed consistent with ample reserves.
However, the exact timing remains uncertain, as it depends on how reserve balances evolve and broader economic conditions.
This anticipated policy shift has crucial implications. Ending QT could ease liquidity constraints, boosting investor confidence and risk appetite.
For ADA and similar assets, increased liquidity might soften selling pressure and encourage inflows, potentially stabilizing or reversing downward trends.
However, the Fed’s cautious approach means any market relief may be gradual and contingent on macroeconomic stability.
