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It has been a frustrating year for Cardano (CRYPTO: ADA) investors. After soaring to $0.45 in mid-April and largely keeping pace with the performance of Bitcoin, Cardano is back almost to where it started at the beginning of the year. Trading at just $0.26, Cardano is now up only 7% year to date.

For Cardano to break the $1 mark and nearly quadruple in value, a lot obviously has to go right. There are two factors especially that could determine whether Cardano bulls finally get rewarded for their patience.

Regulatory risk

The first key factor, of course, is the increased level of regulatory risk now facing Cardano. Back in June, the Securities and Exchange Commission (SEC) named Cardano as an unregistered security in its court cases against cryptocurrency exchanges Coinbase Global and Binance. The news came as a shock to the market, and the price of Cardano promptly fell off a cliff.

It’s not all bad for Cardano, though. In July, a positive court ruling for XRP in the SEC’s case against it gave hope to altcoin investors that Cardano would somehow emerge unscathed from the regulatory haze hanging over the crypto market.

However, the SEC is now suggesting it will challenge the XRP court ruling. As a result, fear, uncertainty, and doubt (FUD) has once again descended upon the crypto market. For Cardano to rally hard, this issue needs some sort of resolution.

Growth in users and transaction activity

Arguably, the single biggest factor propelling Cardano higher in the first quarter of the year was the crypto’s growing success with decentralized finance (DeFi). Heading into 2023, DeFi was a priority for Cardano, and it seemed to be delivering. After major blockchain updates in 2021 and 2022, Cardano was emerging as a potential DeFi powerhouse. It saw the emergence of new DeFi exchanges, the creation of a new stablecoin, and the launch of new DeFi projects on the blockchain. Best of all, total value locked (TVL) — a key metric for determining overall DeFi strength — was on the upswing.

Image source: Getty Images.

But Cardano seems to have lost its way. You can blame the SEC for that, yes, but some blame has to be directed at the blockchain itself. For years, Cardano has been called a “ghost chain” for its inability to generate significant user and transaction activity on its blockchain. The latest numbers don’t generate a lot of enthusiasm. User activity is down, transactions are down, and TVL seems to have stalled. Maybe the critics were right after all.

Even more worrisome, Base, the new blockchain from Coinbase, now has a higher TVL than Cardano. In just a matter of weeks since its launch in early August, Base has become a mini-success story while Cardano still seems to be floundering.

Can Cardano regain its blockchain mojo?

For Cardano to surpass the $1 price mark and make a run at its all-time high of $3.10, it needs to come up with a really big idea to energize investors. In 2022, I thought that concept might be non-fungible tokens (NFTs), but now even Bitcoin seems to have surpassed Cardano in this area. Earlier this year, I thought that big idea was going to be DeFi, but now Base seems to be passing Cardano.

The good news is that Charles Hoskinson, the co-founder of Cardano, remains upbeat about the blockchain’s future prospects. In fact, at a recent blockchain conference, he proclaimed that Cardano had ambitions to become “more than just a crypto.” According to Hoskinson, Cardano was going to become “the backbone of a new digital nation, a new society” and eventually surpass both Bitcoin and Ethereum as the biggest cryptocurrency in the world by market cap.

Sounds good, but can Cardano deliver? The first step is to get some sort of resolution on the SEC regulatory issue. From there, the blockchain must add users and increase transaction activity to convince investors that Cardano is more than just a “ghost chain.”

For now, I’m taking a cautious approach with Cardano. Over the very long term, Cardano seems destined to crack the $1 mark. But I don’t think it’s going to happen this year.

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Dominic Basulto has positions in Bitcoin, Cardano, and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Cardano, Ethereum, and XRP. The Motley Fool has a disclosure policy.

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