EOS Price Analysis – Revisiting Local Lows

EOS remains down 90% from an all-time high established in April 2018. The market cap currently stands at US$2.16 billion with US$555 million in trade volume over the past 24 hours. The crypto asset is ranked 5th on the BraveNewCoin market cap table, just below Bitcoin Cash.

The EOS platform, created by Block.One, is a global computing network running smart contracts on Virtual Machines and looks to rival other dApp or smart contract enabling blockchains, like Ethereum (ETH), Tronix (TRX), and NEO (NEO). The ETH and NEO platforms use gas to pay for units of computing power while EOS uses RAM. EOS went live on June 14th, 2018, after raising ~US$4.2 billion in a year-long ICO, where the average token price was US$5.74.

The EOS blockchain uses a Delegated Proof of Stake (DPoS) consensus mechanism, which was pioneered by EOS and Block.One CTO Dan Larimer. DPoS is also currently being used by BitShares, SteemIt, Lisk, Ark, and Tezos. With DPoS, users vote for delegates, or Block Producers (BPs), who are considered trusted and good actors. The top 21 EOS BPs validate the blockchain, collect a passive income, and are expected to help further protocol development by proposing changes or improvements.

Source: http://eosnetworkmonitor.io/

While the top 100 BPs are paid for their services, the top 21 BPs earn the highest reward. Should any of these BPs go against the community’s wishes, they can be fired and replaced. To encourage voting participation, EOS has implemented a vote decay system with newer votes carrying the most weight. Older votes decay and have a minimal impact after two years.

The governance structure is similar to that of a two-layer representative democracy with landowner suffrage. Each stakeholder has influence proportional to their stake in the system. BPs can also offer reward sharing to encourage votes from stakeholders. However, this can encourage BPs offering the highest reward to stakeholders to become elected and does not necessarily encourage what is in the network’s best interest. The current reward for staking on EOS, beyond voting on network proposals, is use of the Virtual Machine (VM) components, including; bandwidth, RAM, and storage.

Another arm of the EOS governance system is the EOS Core Arbitration Forum (ECAF), a volunteer-led tribunal. Thus far, ECAF has given nine public notifications of arbitration and has facilitated 20 orders or rulings since June 2018.

On the network side, 55% of all tokens are currently being staked, and the network is confirming around 67 transactions per second. The record number of transactions on the network stands at 3,996 per second. The current number of total transactions per day on the network (line, chart below) stands at ~5.75 million, which has increased substantially since June, and is likely related to dApp activity. The average transaction value (fill, chart below) is currently US$11, which is down from a May high of US$38,000 and is also likely related to dApp activity.

Source: coinmetrics.io

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) fell rapidly from November to January and remains near an all-time low. NVT is difficult to compare between coins that use different transactions types, but the ratio can be used to assess a network’s relative utility over time. EOS’ NVT, at 16, is currently lower than TRX, at 42, ETH, at 31, and NEO, at 24. A clear downtrend in NVT suggests a coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator, whereas an uptrend in NVT suggests the opposite.

Daily active addresses (fill, chart below) have continued to increase since July and are continuing to push all-time highs. EOS currently has fewer daily active addresses than ETH, but significantly more daily active addresses than TRX and NEO. Active addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law. Grassroots interest on meetup.com shows 65,000 people in 184 EOS groups worldwide.

Source: coinmetrics.io

The cost of RAM on the EOS virtual machine is at an all-time low, currently ~0.0640EOS/kb, and continues to decrease. RAM on EOS is subject to supply and demand, as well as speculation, and is required to create new accounts or interact with dApps. New account creation uses 4kb of RAM. A few users attempted to corner the RAM market in July 2018 when RAM costs skyrocketed to ~900EOS/MB, which meant a new account cost ~US$32 at that time. In response, 15 of the 21 EOS BPs approved a measure to double the supply of RAM, flooding the market and decreasing RAM costs.

Source: https://eos.feexplorer.io/

The top EOS dApps over the past week, ranked by transactions, were dominated by gambling dApps. However, EOS Knights is a mobile role-playing game that has seen sustained user growth since being launched in August 2018 and has had 5,800 users in the past 24 hours.

Volume across most EOS dApps has risen slightly over the past month. Gambling dApps are popular because gambling is normally highly regulated in most countries. These dApps are currently outside of legal purview, at least for the moment. Transaction costs are also very minimal, or non-existent, when interacting with EOS dApps

Source: https://dappradar.com/eos-dapps

Turning to developer activity, over 160 developers have contributed to the EOS project on GitHub. There have been a cumulative 6,653 commits over the past year, mostly in the main repo (shown below). Larimer’s commits dropped off precipitously after June 2018.

Earlier this month, EOSIO V1.6.0 and EOSIO.CDT V1.5.0 was released which brings improvements to sustainable transactions per second, reduced CPU costs, lower latency on all EOSIO based blockchains, and enhanced tooling for smart contract development.

Most coins use the developer community of GitHub. 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.

Source: https://github.com/EOSIO/eos/graphs/contributors

EOS exchange traded volume in the past 24 hours has predominantly been led by the Tether (USDT) and Ethereum (ETH) pairs, with Bitcoin (BTC) accounting for a smaller but substantial percentage of the volume. The majority of trading occurred on Huobi, Bitforex, and Bibox. Huobi, along with owning the top EOS BP, launched an EOS dedicated exchange on January 12th. Bitfinex is also a top EOS BP and plans to launch EOSfinex, an EOS-based DEX. EOS is not currently listed on Bittrex or Coinbase.

Technical Analysis

EOS, like most of the crypto market, has had periods of choppy consolidation over the past month. As the potential of a larger move approaches, exponential moving averages (EMAs), Pitchforks, Ichimoku Cloud, and volume can be used to find optimal entry and exits. Further background information on the technical analysis discussed below can be found here.

On the daily chart, there has been a bearish 50/200EMA cross since late July. Although a bullish entry would not be warranted until a bullish 50/200EMA golden cross occurs, a move towards the 200EMA continues to be possible simply due to mean reversion. A breach of the 50EMA, which has acted as significant resistance, increases the likelihood of mean reversion towards the 200EMA.

Bitfinex open interest remains mostly net long, with longs sitting near record highs (top panel, chart below). A significant price movement downwards will result in an exaggerated move as the long positions begin to unwind. There are no active RSI or volume divergences.

The current spot price continues to reside with the boundaries of a bearish Pitchfork (PF) with anchor points in December, March, and April. Price recently hit diagonal resistance and sits in the lowest bounds of the PF. A breach of the diagonal resistance would suggest a return to the median line (yellow), currently at US$4.50. A breach of the ML to the upside could bring prices of US$7-US$11 based on the PFs upper resistance zone. If price moves lower, buyers will likely return in the bottom diagonal zone at US$1.72.

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 status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30), for more accurate signals, are mostly bearish; price is below Cloud, the Cloud is bearish, the TK cross is bullish, and the Lagging Span below Cloud and below price.

A short entry will emerge if the TK cross turns bearish, which is highly suggestive of bearish continuation when occurring below the Cloud. Volume history (horizontal bars) suggests significant support at US$1.94. If price breaches Cloud resistance, an Edge to Edge target of US$3.86 is likely.

Lastly, on the EOS/BTC pair, the daily chart shows similar bearish trend indications; Cloud is bearish and price is below the 200EMA. Falling below the Cloud with a bearish TK cross would signify a short entry. Volume history (horizontal bars) suggests significant support at the 30,000 sat zone. Further, an Adam and Eve double bottom may form over the next few weeks indicating the possibility of trend reversal.

The next high probability opportunity for a long trade will likely come with a bullish Kumo breakout with a bullish TK cross. Based on the shrinking Cloud resistance, this may occur as early as this week. A breach of the 200EMA would add to the possibility of continued bullish momentum. The volume profile also shows very little resistance above the 82,000 sat zone.

Conclusion

Network fundamentals show that gambling dApps and EOS Knights have driven the number of on-chain transactions per day into the multi-millions, while the average transaction value has sunk to below US$15. EOS does not have transaction fees per se, so it is hard to judge the importance or relevance of this data when compared to other blockchains which do have transaction fees. Active addresses have also risen substantially, likely due to dApp activity. The governance system of BPs and the ECAF shows a centralization of power which is not apparent in many other blockchains and, for many, is antithetical to crypto ideology in general.

Technicals suggest an intact multi-month bear trend with no signs of slowing. Price is very likely to revisit local lows at ~US$1.95 over the next few weeks. Further lows before consolidation at this level would require significant bearish momentum. EMAs on the daily chart suggest that prices at these lows would again be nearing oversold conditions and increase the possibility of mean reversion toward the US$4.50 level.