Whatever You Do, Don't Buy Cardano Until This 1 Thing Happens

If I were an investor looking at Cardano (CRYPTO: ADA), I'd avoid buying until it demonstrates one specific thing. If it can do that thing, it probably won't have any problem soaring to new heights.

Here's what needs to happen before it's worth investing in.

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This coin is missing a killer use case

As a blockchain, Cardano has spent years emphasizing a rigorous research process that leads to careful and collaborative engineering. That development methodology is theoretically a virtue, but it's not an economic moat that blocks competitors, nor does it imply an appealing investment thesis. A moat only appears when builders choose a chain because switching feels expensive, and for crypto, such moats are pretty much always a competitive advantage.

Today, Cardano is tenuously present in the areas that tend to pull in capital, like decentralized finance (DeFi) apps and stablecoins.That kind of "in the running but only technically so" profile can persist for years without ever leading to investor upside.

So, the one thing to wait for before even considering buying Cardano is for it to demonstrate that it has a niche where it excels beyond the competition. If there isn't any segment of the crypto sector where the chain's design produces measurably better outcomes than its rivals, there's simply no incentive for capital to allocate itself there. Hence the coin's extreme underperformance relative to other crypto majors over the last three years.

What to watch

Investors should watch two things to see if Cardano is changing for the better in a way that might eventually justify a purchase.

First, its core DeFi metrics, like total value locked (TVL), need to rise for multiple quarters in a row. Second, look for signs that the chain is attracting apps that people use for more than a few months. App revenue is one metric to watch, but the number of new apps being launched per month is also a decent indicator, as is the number of monthly active wallet addresses on the chain.

Until Cardano starts to fulfill those criteria and dominate a niche, sitting on your hands or looking for other investments is the best strategy.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.