Topics Strategies
Bybit Learn
Bybit Learn
Intermediate
Sep 21, 2022

Cardano Vasil Hard Fork: 3 Trading Strategies To Consider

As Cardano pushes toward their latest major upgrade, the Vasil hard fork aims to improve the network by making it faster, more functional and secure. 

According to the team, the Vasil hard fork, previously said to come in June, is set to go live on September 22 or about a week after The Merge takes place. Read on as we detail what is in store for Cardano and the possible courses of action you can consider to take advantage of the upcoming volatility.

What Is the Cardano Vasil Hard Fork?

The Cardano Vasil Hard Fork is an upgrade in which the Cardano network will become more robust and scalable as it fixes security loopholes, boost connectivity, and improve the overall functionality of the network.

In 2021, Cardano introduced smart contract compatibility after their previous upgrade known as the Alonzo hard fork. This feature has greatly helped the Cardano ecosystem as many new decentralized applications (DApps) are now building their platforms on the Cardano blockchain.

How will the Vasil Hard Fork improve Cardano?

Prior to the upgrade, there were several Cardano Improvement Proposals (CIPs) posted on the forum on how to improve the overall state of the Cardano blockchain. The Vasil hard fork will roll out many of these CIPs and work on fixing any bugs or security loopholes. There were three critical improvement proposals made in line with one another: CIP 31, CIP 32, and CIP 33.

CIP 31 introduces a new reference input to facilitate access to information stored on the Cardano blockchain and allows anyone to look up outputs without processing them. This means that DApps can now access transactional output without having to recreate it as before.

CIP 32 is simple and aims to bring an on-chain data storage feature for the community and developers. This is expected to improve the decentralization of Cardano's structure.

CIP 33 will allow for lighter transactions, quicker processing and lower fees. It points the Cardano Virtual Machine to a reference script instead of having to include the whole script with the transaction. Since apps built on the blockchain are written in a programming language known as Haskell, it has to be converted into a different language for smart contract compatibility. This results in slower performance and increased cost when making transactions due to the additional transfer of app logic along with the transaction.

Other small improvements include CIP 40 and diffusion pipelining. CIP 40 will introduce a new type of output transaction and diffusion pipelining is said to improve block transmission without full validation. All of these changes put simply, will increase the throughput of Cardano and improve the development of smart contracts and DApps.

Potential Outcomes for Cardano

The Vasil hard fork has been getting a lot of attention from the Cardano community. While the upgrade is largely overshadowed by The Merge, we‘ll explore three potential outcomes of the Vasil hard fork and what you can do with each strategy. For reference, we’ll be using ADA's price as of 15th September 2022, which is at $0.47.

Before diving into specifics, here’s a table that summarizes each trading strategy:

Strategy

Execution

Benefits

Bullish: Stop Market Long Order

  • Choose ADA2L token for 2x leverage

  • Set a stop market order on ADA2L above resistance

  • Low capital requirements with leverage on your asset
  • Low capital requirements with leverage on your asset
  • Catch the downside when ADA breaks support
  • No margin or liquidation risks

Bearish: Stop Market Short Order

  • Choose ADA2S token for 2x leverage
  • Set a stop market order on ADA2S below support

  • Profit when ADA prices fall with a clear entry point
  • Low capital requirements with leverage on your asset
  • Catch the downside when ADA breaks support
  • No margin or liquidation risks

Neutral: Stake and Hedge trade

  • Buy ADA on the Spot market
  • Stake ADA to earn the yield
  • Short-sell the same amount of ADA Perpetual or Inverse contract to hedge your ADA exposure

  • Net profit when ADA price increases from spot and yield
  • Protects against downside when price drops

Bullish Prediction for Cardano

According to Cardano's founder Hoskinson, the Vasil hard fork will be the most complicated upgrade in Cardano's history. The current upgrade will include changes to their smart contract language and new primitives to further optimize the blockchain.

The crypto community is very optimistic about the upgrade and expects the price of Cardano to move upward from now until the end of September. It is clear that hard forks have been a catalyst in pushing the price of ADA up previously. Of the last two upgrades, ADA prices have soared by more than 10 times, and the latest Alonzo hard fork in 2021 saw the price of Cardano soar more than 3 times in less than 3 months.

Additionally, the blockchain is set to become a developer's paradise which could eventually lead to more usage of the blockchain should useful DApps start to appear on Cardano. This is a positive sign for investors and some might look to pick up some ADA if the hard fork commences as scheduled on September 22.

Optimal Strategy: Stop Market Leveraged Long Order

If you’re bullish about the Vasil hard fork following its previous trends and believe that the price of ADA will once again soar upon a successful upgrade, an optimal strategy would buy a leveraged perpetual token ADA2L on Bybit. To open a stop market long order, you have to change your order type from 'limit' to 'stop market', then set your entry above the resistance levels for ADA and choose the amount you would like to enter into the trade.

This strategy is designed to help short term investors take advantage of leveraged positions to increase their profit when an asset goes up in value. Leveraged tokens have rebalancing mechanisms and could be seen as buying into perpetual contracts without the risk of liquidation.

How to execute this ADA Trade:

First, check the ADA chart for an area with strong resistance. You can use an indicator like the 20 Weekly Moving Average which shows a strong resistance for ADA between $0.51 and $0.58.

To open the trade, ensure that you have funds in your Bybit Spot Trading wallet. Next, buy the ADA2L leveraged token above the resistance area at a price of your choice, using the stop market order. This would tell the exchange to execute your order if ADA goes above your price target.

Max profit: Difference between Entry - Exit before rebalancing

Breakeven: Strike Price

Max loss: Volatility decay + fees

Bearish Prediction for Cardano

Sometimes there might be unforeseen problems before the upgrade which could cause sentiments to turn negative. We have seen this with the Vasil hard fork previously as it was originally pushed from June to July and now to September.

While some think the Ethereum merge could be beneficial for the price of Cardano, many believe a successful merge could see ETH taking market share away from ADA, this could cause a bearish short term outlook for Cardano regardless of the completion of the upcoming Vasil hard fork.

Another bearish factor could be the lack of developer interest after the upgrade, which could be due to the complexity of their programming language. As one of the slower growing Layer 1 ecosystems, Cardano has seen competitors like Solana and Near grow over 4 times in developer size despite having a much smaller market cap than Cardano.

Optimal Strategy: Stop Market Leveraged Short Order

If you’re bearish about the Vasil hard fork and believe the hype around it will fizzle out after the upgrade, you can set a stop market short order on Bybit. A leveraged short order is the opposite of our previous example, which means that you will be entering a short position of ADAUSDT perpetual contracts with leverage.

It’s designed to help short term investors take advantage of leveraged positions to increase their profit when an asset goes down in value. Entering a short position with leveraged can be safer than purchasing the underlying contract as there is no margin or liquidation price to worry about.

How to execute this ADA Trade:

First, check the ADA chart for an area with strong support. Similarly, you can use an indicator like the Fibonacci Retracement which shows strong support for ADA at around $0.43.

To open the trade, ensure that you have funds in your Bybit Spot Trading wallet. Next, buy the ADA2S leveraged token below the support area at a price of your choice, using the stop market order. This would tell the exchange to execute your order if ADA goes below your price target.

Max Profit: Difference between Entry - Exit before rebalancing

Breakeven: Strike Price

Max Loss: Volatility decay + fees

Neutral Prediction for Cardano

While this seems unlikely to happen due to historical data, we should not leave out the possibility of a non-event. This happens when the market decides on the value of a coin before its event and moves before anything occurs. In this situation, the price would trade sideways which means ADA would neither pump nor dump.

Since you can stake ADA on Cardano without sending your coins out (unlike Ethereum), long term holders might continue to stake their ADA while earning yield. This combined with a low buying pressure could cause the price of ADA to stay neutral. This could be possible as Cardano has been known to roll out developments at a slower pace and the community could just see the Vasil hard fork as another upgrade among many others in the future.

Optimal Strategy: Delta-Neutral Trade

This is a popular neutral strategy that involves buying spot assets, staking them and shorting the same amount of assets. This would allow you to earn from the staking yield instead and ignore any price movements.

How to execute this ADA trade:

Buy spot ADA on Bybit. If you still have USD, you can short the same USD amount on ADA perpetual contracts to hedge your position, and proceed to stake your ADA. If you don't have anymore USD, you can use half the ADA you bought and short it on ADA inverse contracts to hedge your position, and stake the remaining half to earn staking rewards. Both methods will ensure you are delta neutral, but do take note of funding rates and liquidation prices.

You can also hedge using leveraged tokens but ensure you use half the amount as they are innately leveraged, however, because they get rebalanced daily, it is not recommended for long term holds.

Staking ADA With Bybit Savings

As Cardano runs on a PoS blockchain, you can earn yield on your ADA by staking them with Bybit Savings. Similar to our other staking products, you won't be able to trade, send or sell the amount you’ve staked, but you may withdraw your ADA balance at any time unless you’ve chosen fixed term staking.

Here’s how you can start earning yield on your ADA with Bybit:

  1. Purchase and hold ADA in your Bybit account

  2. Verify your identity with ID documents (only individuals are eligible for staking)

  3. Understand the terms and conditions before staking ADA on Bybit Savings

  4. Deposit your ADA with Bybit Savings

  5. Earn daily yield on your ADA

Your first rewards payout should appear two days after each deposit. Your reward payout depends on the amount of ADA staked, and should appear daily after your yield has been calculated.

The Bottom Line

Like all major upgrades, the hype around Cardano will rise as the date draws near. If you decide to pick up some ADA, it’s worth looking through the above strategies and how you can use them in the event of a bullish or bearish market reaction. Should this upgrade be successful with no delays, Cardano could become a serious competitor to Ethereum and steal some market share even after The Merge.

Cardano has been maintaining its position well in the top 10 cryptocurrency spots. However, similar to post-merge Ethereum, Cardano still has a long way to go as the Layer 1 is known for pushing out developments at its own pace. The Vasil hard fork is a step in the right direction, but if Cardano wants to hold its spot among the top cryptocurrencies, it will need to get more users onboard to its ecosystem.

Whether you’re a long-term investor or short-term speculator, you can invest in ADA and other kinds of cryptocurrencies by registering with Bybit to begin your crypto investing journey today.

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For an abridged version of our recommended trading strategies, check out our handy infographic below.

cardano vasil hard fork trading strategies infographic