Decred Price Analysis – Sustained bear trend

The project was launched in February 2016 by a former Bitcoin development company, Company0, based in Chicago, and uses a hybrid Proof of Work (PoW) and Proof of Stake (PoS) model dubbed Proof of Activity (PoA).

A classic PoW model favors entities with access to cheap electricity and high amounts of capital to invest in mining infrastructure. This model is subject to mining centralization and the 51% attack, where a miner or pool with more than half of the hash rate can control the blockchain and the transactions.

A classic PoS model favors early adopters who accumulated coins early, typically during an initial distribution. The benefits of PoS include decreased infrastructure costs as well as the ability for any user to directly participate in network governance decisions. PoS only blockchains are subject to stake grinding vulnerabilities, which favor stakers and their rewards. This effectively allows a majority PoS miner to fork and create an alternate blockchain.

The hybrid DCR system attempts to shore the vulnerabilities of both PoW and PoS consensus models. PoW miners create the blockchain and earn a portion of the block reward, while PoS stakeholders purchase tickets that earn a portion of the block reward and can be used to vote on whether a block is permanently added to the blockchain.

PoS stakeholders can also vote on code updates and budget proposals through a blockchain-anchored public proposal system which went live in October 2018, dubbed Politeia. If an update or propsal is approved by ticket holders there is a period of time for amendments or reversals, and then the implementation process begins.

Stakeholders can purchase tickets with DCR, using a DCR client. Five tickets are then chosen randomly from the total ticket pool and, if at least three of the tickets vote ‘yes’, the block is permanently added to the blockchain.

Over the past year, ticket costs in DCR have continued to increase. Ticket prices are based on supply and demand and have no direct correlation to DCR exchange prices. If more and more people stake their DCR, then the ticket price will continue to rise.

The PoW component uses the BLAKE-256 hash function, similar to Bitcoin’s SHA-256. The network has five minute block times and difficulty adjustments approximately every 12 hours. There are currently 232 network nodes, most of which reside in the United States. Over the past year, network hash rate and difficulty have increased substantially, with both reaching an ATH a few days ago. This is largely in part due to the 12 BLAKE-256 ASICs released in 2018. The two most profitable ASICs currently are the Bitmain Antminer DR5 and the MicroBT Whatsminer D1.

Block rewards are split 60% to PoW miners, 30% to PoS stakeholders, and 10% to developers. The current block reward breakdown is 11.380 DCR for PoW, 1.138 DCR per ticket for stakeholders, and 1.896 DCR for the developer subsidy. Of the total 21 million supply, 43.5% has been mined thus far, which includes an 8% pre-mine at launch, or 1.68 million DCR.

According to a December 2015 blog post, all pre-mined coins owned by developers were either purchased at a rate of US$0.49 per coin or earned for work performed. Of the total 9.145 million circulating supply, 46.72% of the coins are being held in the PoS pool. The developer fund address currently holds 603,746.29 DCR, or US$9,761,346.89 at current prices, and is the largest single account on the network.

Source: https://dcrstats.com/

Turning to the health of the network, the current number of transactions per day on the network (line, chart below) has been ranging between 3,200 and 3,500 per day over the past six months. Aug 2017 saw a record high of 4,800. The average transaction value per day has fallen from US$7,900 in late June 2018 to ~US$2,000 currently. Transactions fees, all of which are collected by the PoW miners, are currently averaging 0.00101 DCR per transaction, or US$0.01618 (not shown).

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has been in a downward trend over the past two years, although it is currently sitting at a multi-year low and rising. Inflection points in NVT can be leading indicators of a reversal in an asset’s value. A clear uptrend in NVT suggests a coin is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator, whereas a downtrend in NVT suggests the opposite.

Daily active addresses (fill, chart below) have declined since January 2018, but remain well above levels seen throughout most of 2016. Active and unique addresses are important to consider when determining the fundamental value of the network using Metcalfe’s law.

Turning to developer activity, developers have contributed a cumulative ~3,100 commits to the DCR project on GitHub over the past year. Most of these commits occurred in the dcrd repo (chart below).

Most coins use the developer community of GitHub where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

In the markets, DCR exchange traded volume in the past 24 hours has predominantly been led by the Bitcoin (BTC) pair with some volume originating from the Tether (USDT) pair. The majority of trading occurred on DragonEx, Binance, and Bittrex. Trading volume would clearly benefit from the availability of a direct USD fiat pair on a retail trading platform like Coinbase.

Google Trends data for the term "decred" remained down sharply throughout 2018. A slow rise in searches for "decred" preceded both highs in 2017 and 2018, likely signaling vast interest from new market participants at that time. A 2015 study found a strong correlation between the google trends data and BTC price, while a May 2017 study concluded that when the U.S. Google "bitcoin" searches increased dramatically, BTC price dropped.

Technical Analysis

Much like the rest of the cryptocurrency market, DCR prices have continued to decline since May, and lack any bullish momentum. The strength of this trend, support and resistance zones, as well as trend reversals, can be determined using Volume Profile of the Visible Range (VPVR), Pitchforks, Ichimoku Cloud, and moving averages. Further background information on the technical analysis discussed below can be found here.

On the three day chart, VPVR shows strong support below US$3.50. If DCR breaks the local low at US$14.50, there is negligible support until US$3.50. There are no active RSI or volume divergences, but a lower low would likely result in a bullish divergence, indicating waning bearish momentum. A bearish Pitchfork with anchor points in January, March, and May shows price oscillating between the upper resistance and the median line. A breach of the median line support would likely result in a drop into the US$4.50 to US$8.00 zone.

Turning to the Ichimoku Cloud, four metrics are used to determine if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

The current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals are bearish; price is below Cloud, Cloud is bearish, the TK cross is bearish, and Lagging Span is below Cloud and in price. A traditional long entry will not trigger until the spot price is above the Cloud. This is known as a Kumo Breakout. The spot price has not been above the Cloud since May 2018. If the current lows hold, a move towards US$35 is likely based on the flat Kumo, or 50% retracement of the range.

The current Cloud metrics on the twelve-hour time frame with doubled settings (20/60/120/30) for more accurate signals are also bearish; price is below Cloud, Cloud is bearish, the TK cross is newly bearish, and Lagging Span is below Cloud and price. A short entry recently occurred when the price fell below the Cloud with a bearish TK cross.

On the daily DCR/BTC pair, Cloud metrics are also entirely bearish with a subtle but growing bullish RSI and volume divergence. VPVR shows very little support until the 0.00339 BTC level. A breach of the 50EMA would likely lead to a price move towards the 0.00589 BTC – 0.0063 BTC zone between the high volume zone and flat kumo. Testing the previous December 2017 low at 0.003 is very likely.

Conclusion

Network fundamentals show a multi-year decline in NVT, very few transactions per day, and a recent significant uptick in mining activity. Transaction fees are low and staking interest is high, but inflation is currently among the highest of any PoW coin. Fortunately, DCR’s treasury system for blockchain proposals and dev funding will likely sustain the coin for many years to come. DCR is very similar to DASH in this regard.

Technicals show a sustained bear trend currently near local lows with no signs of reversal. Dip buyers will likely materialize at the US$15, US$10, US$5 psychological levels. If the local lows do hold, a 50% retracement target of US$35 is likely within the year. The trend will remain bearish until the DCR spot price is above the bearish Pitchfork, the Cloud, and the daily 200EMA.