Ethereum Classic Price Analysis – Atlantis protocol upgrade now live

Ethereum Classic (ETC) is a distributed ledger and decentralized computing platform with smart contract capabilities, created in 2016 after a fork in the original Ethereum (ETH) project. The crypto asset is currently 20th on the BraveNewCoin market cap table, with a market cap of US$561 million and US$425 million in trade volume over the past 24 hours. The ETC spot price is down 90% from the all-time high set in mid-January 2018.

ETC was created by a contentious hard fork, following the Decentralized Autonomous Organization (DAO) hack in June 2016, which lead to approximately US$50 million being drained from the DAO through recursive call attacks. The DAO was originally established as a venture capital fund built on Ethereum and launched with a crowd sale in April 2016. As of May 2016, the fund held ~14% of the Ethereum total supply, roughly ~US$150 million, from 11,000 investors.

To recoup the lost funds, a hard fork of the original Ethereum chain quickly followed the hack. The original chain survived, in large part due to exchange listings, and was renamed Ethereum Classic. ETC proponents questioned the immutability of the ETH ledger after the hard fork solution was implemented. Additionally, the ETC developers and community agreed to cap issuance and decrease the block reward. Annual inflation on the network currently stands at 8.6% (green) compared to ETH’s 4.6% (purple).

Source: CoinMetrics

Barry Silbert, founder and CEO of Digital Currency Group (DCG), was one of the most prominent members of the community embracing ETC and encouraging future development, through Hong Kong-based IOHK. This month, IOHK announced the company would be moving to the state of Wyoming due to the friendly regulatory environment.

Grayscale, a subsidiary of DCG, is comprised of several funds which issue shares backed by crypto. The trust issues shares for an ETC product which currently has US$42.7 million in assets under management, representing 8,324,262 ETC, or 7.3% of the circulating supply. The trust intends to direct up to one-third of the Annual Fee, for the first three years of the trust’s operations, towards the Ethereum Classic Cooperative, whose initiatives support development, marketing, and community activities.

A quick comparison between Ethereum and Ethereum Classic shows Ethereum dominating by every metric, including market cap, transactions per day, hashrate, and GitHub commits on the main repo over the past year. As Ethereum transitions to a new consensus algorithm, ProgPoW, ASIC miners may migrate en masse to the ETC chain, as they will not be able to mine Ethereum. Further, Linzhi, an Ethash ASIC manufacturer just released a new Ethash ASIC. Those who purchased these ASICs will be looking to obtain return on investment, regardless of the chain they are mining.

The number of ETC on-chain transactions per day (line, chart below) has ranged from 26,000 to 46,000 since April 2018. Transactions per day hit an all-time high in March 2018 after breaching the 70,000 mark. A significant uptick in transactions per day should be seen as a bullish indicator.

The average transaction value per day (fill, chart below) has increased dramatically since February 2018, and has ranged between US$100 to US$600 since the beginning of September. Average transaction value hit an all-time high in mid-January 2018 at nearly US$6,000, also corresponding with an all-time high in ETC token price.

Source: CoinMetrics

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has mostly held above 70 since April 2018. NVT dropped to around 40 in December 2018 and January 2019 before quickly rising again. NVT hit a record high of nearly 120 in mid-May.

A clear uptrend in NVT suggests a coin is overvalued based on its economic activity and network utility, which should be seen as a bearish price indicator. An increasing NVT in a bull market suggests the asset is currently overbought, or that the NVT metric may need to be retooled to better understand market variables.

Monthly active addresses (MAAs) spiked dramatically in late 2018 and held near record levels through most of 2019 (fill, chart below). However, MAAs have fallen 85% since August. These addresses may represent a mixing service or a network test. In general, a sustained uptick in MAA should be seen as a bullish indicator as this indicates increased blockchain use and interest. The inverse suggests declining interest in the chain and ecosystem

Source: CoinMetrics

Mining activity over the past few years has increased substantially thanks to ASICs developed by Innosilicon, Bitmain, and PandMiner for the Ethash consensus algorithm. Linzhi, a new Ethash ASIC manufacturer, released their miner on September 11th.

Source: asicminervalue

Hash rate peaked in September 2018 and is currently sitting within the previous multi-year range set from October 2017 to July 2018. As opposed to ETH, ETC is unlikely to ever implement Proof of Stake (PoS) and will likely remain a Proof of Work (PoW) chain for the indefinite future. As ETH mining becomes more and more unprofitable, with successive changes to the ETH block reward, miners will likely deploy their Ethash ASICs on the ETC chain.

Source: bitinfocharts

In early January this year, ETC suffered a 51% attack via “deep chain reorganization.” Mark Nesbitt, a security engineer at Coinbase, alerted the community of the attack with a blog post explaining the matter. Coinbase disabled ETC transfers at that time, and subsequently re-enabled them on March 11th. The trading platform now requires 5676 confirmations for ETC deposits, which would take about 24 hours in normal conditions.

The attack resulted in double-spends for 219,500 ETC, or US$1.1 million at that time, according to the blog post. Shortly after the attack, a site to monitor the status of potential 51% attacks was released by ETC Labs. Hashrate has remained relatively stable since the incident.

Exchanges are typically the most vulnerable and biggest targets during a 51% attack. Gate.io reported the theft of 40,000 ETC, or US$200,000 at that time. A few days later, US$100,000 in ETC was returned to the exchange with no explanation. Bittrue announced there was an attempt to withdraw 13,000 ETC during the 51% attack, but the withdrawal was stopped by exchange-side countermeasures.

Source: blog.coinbase.com

Turning to developer activity, the ETC project has 61 repos on GitHub. The most historically active repos have had relatively few commits over the past year (shown below). The Ethereum Classic Improvement Protocol (ECIP) repo has been the most active over the past few months.

Most coins use this development platform, 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.

On January 8th, after the 51% attack, ECIP-1049 was introduced by Alexander Tsankov. The proposal centers on changing the ETC PoW algorithm from Ethash to Keccak256. Tsankov believes that this algorithm would be less vulnerable to 51% attacks. Keccak256 is also used for ETH smart contracts. Discussions regarding the possible change are currently ongoing, and includes a wider discussion around implementing ProgPoW, which is likely to be released on ETH later this year.

In April, the ETC Labs dev team released plans to implement ECIP-1054, Atlantis, will enable the Spurious Dragon and Byzantium network protocol upgrades currently active on the ETH network. The protocol changes will increase interoperability between the ETC and ETH chains. Atlantis was successfully implement on main-net September 12th. The _Constantinople _protocol changes will be included in Agharta, ECIP-1056, which has no current launch date. Both ECIPs will occur via a hard fork and both aim to increase ETC and ETH compatibility.

Source: Github – go-ethereum

Source: Github – ECIPs

Source: Github – blockchain explorer

In the markets, ETC exchange traded volume over the past 24 hours has predominantly been led by the Tether (USDT), Bitcoin (BTC), and Ethereum (ETH) pairs. The Korean Won (KRW) pair currently holds a 5.8% premium over the USD pair.

Although many exchanges paused ETC deposits and withdrawals in January, during the 51% attack, they have since resumed trading as normal. In April, Poloniex enabled ETC/BTC margin trading up to 2.5x leverage for non-U.S. customers. ETC/BTC and ETC/USD pairs were added to ETHfinex in May. The newly launched Binance.US enabled ETC/USDT and ETC/USD trading pairs earlier this week.

Technical Analysis

The 51% attack in early January seems to have had no long term impact on ETC price. Since the December lows, ETC has essentially moved in line with the broader crypto market. Potential roadmaps for upcoming price movements can be found on high timeframes using Exponential Moving Averages, volume profiles, Pitchforks, chart patterns, and Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.

On the daily chart, the 50-day and 200-day exponential moving averages (EMAs) have been bearishly crossed since June 25th. The 200-day EMA at US$6.66 should now act as resistance. Significant volume support (horizontal bars) sits at the current local low of US$4.40. There are currently no active Relative Strength Index (RSI) or volume divergences although RSI has consolidated since April.

The long/short open interest on Bitfinex (top panel, chart below) since April 2018 has been heavily net long, with long positions currently accounting for 87% of open interest. Over the past week, long open interest has increased 27%. A significant price movement downwards will result in an exaggerated move further, as the long positions will begin to unwind. This is known as a “long squeeze.”

Price also remains bound by a multi-year bearish Pitchfork (PF) with anchor points in May and September 2017 and May 2018. Price broke out from a falling wedge in November 2018, to the down side, breaching the PF median line (yellow) with significant bearish momentum. Based on this PF, the macro trend will remain bearish until a break above US$9.40. The US$10 level also represents significant psychological resistance.

Turning to the Ichimoku Cloud, four metrics are used to indicate 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.

Cloud metrics on the daily time frame, with doubled settings (20/60/120/30) for more accurate signals, is entirely bearish; price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below Cloud and below Price. A long entry will not trigger until price is again above the Cloud.

Lastly, on the daily ETC/BTC chart, trend indicators suggest a bearish trend with oversold metrics and price near an all-time low. The 50-day and 200-day EMAs have been bearishly crossed for 569 days. There is a large bullish divergence on RSI with price significantly below the 200-day EMA. Open interest on Bitfinex is currently 76% short (not shown). A mean reversion target of 83,500 sats is suggested both by the 200-day EMA and the flat Kumo.

Conclusion

ETC successfully implemented the Atlantis protocol upgrade earlier this month, bringing more compatibility with Ethereum. Development on the ETC chain remains several months behind ETH, with very little activity over the past six months. Also in stark contrast to ETH, ETC’s value-add appears to be a hard cap on total coins, and no plans to change from PoW to PoS. There is a pending proposal to change the consensus algorithm in an attempt to increase ASIC resistance.

Technicals for the ETC/USD pair suggest a continued bearish trend. Price will likely range from US$5.00 to US$10.00 for the indefinite future, until sufficient volume can break either end of the range. Prices above the psychological resistance of US$10 should see significant bullish momentum.

The ETC/BTC pair has again reached for all-time lows over the past week, following down with the rest of the crypto market broadly. Despite this bearish momentum, a bullish divergence continues to grow. Knife-catchers will likely continue to slowly move back into the pair based on the risk/reward profile of a mean reversion to 83,500 sats.