Ethereum Classic Price Analysis – Dev activity slows

Ethereum Classic (ETC) is a distributed ledger and decentralized computing platform with smart contract capabilities, created in 2016 by forking the original Ethereum (ETH) project. The crypto asset is currently 23rd on the Brave New Coin market cap table, with a market cap of US$552 million and US$237 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 after 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 8.39% (green) compared to ETH’s 4.43% (purple).

Source: CoinMetrics

Barry Silbert, the founder and CEO of Digital Currency Group (DCG), was one of the most prominent members of the community to embrace ETC and encouraged future development, through then Hong Kong-based IOHK. Earlier this year, IOHK announced the company would be moving to the state of Wyoming due to a friendlier regulatory environment.

Grayscale, a subsidiary of DCG, is comprised of several funds that issue shares backed by crypto. The trust that issues shares for an ETC product currently has US$42.5 million in assets under management, representing 8,756,888 ETC, or 7.6% of the circulating supply. Managers of the trust intend 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, which has initiatives supporting development, marketing, and community activities.

A quick comparison between Ethereum and Ethereum Classic shows Ethereum dominating by most metrics, including market cap, transactions per day, hash rate, and GitHub commits on the main repo over the past year.

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 its miner on September 11th.

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 profitably mine on the Ethereum chain. Further, the Ethash ASIC manufacturer Linzhi also recently released a new Ethash ASIC. Those who purchased these ASICs will be looking to obtain a return on their investment, regardless of which chain they are mining.

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.

Source: BitInfoCharts

The number of ETC on-chain transactions per day (line, chart below) has ranged from 26,000 to 56,000 since April 2018. Transactions per day hit an all-time high in March 2018 after breaching the 70,000 mark. Any significant uptick in transactions per day should be seen as a bullish indicator.

The average transaction value per day (fill, chart below) has decreased dramatically since February 2018 and has ranged between US$100 to US$600 since the beginning of September 2018. The average transaction value hit an all-time high in mid-January 2018, at nearly US$6,000, which corresponded with an all-time high in token pricing. Transaction fees are currently US$0.0093, a multi-year low (not shown).

Source: CoinMetrics

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has dropped dramatically since June 2019, from 114 to 58. NVT also 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 downtrend in NVT suggests a coin is undervalued based on its economic activity and network utility, which should be seen as a bullish price indicator. A decreasing NVT in a bear market suggests the asset is currently oversold, 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). Recently, MAAs spiked to 4.7 million before dropping back to the previous range of 10,000 – 200,000. 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

In 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 the 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, which was around ~US$1.1 million, according to the blog post. Shortly after the attack, a site designed to monitor the status of any potential 51% attack 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, which was around ~US$200,000. A few days later, US$100,000 in ETC was returned to the exchange with no explanation. Bittrue announced that 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 on Github is split between “ethereumclassic” and “etclabscore.” 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.

The most historically active repos have had relatively few commits over the past year (shown below). The Ethereum Classic Improvement Protocol (ECIP) repos have been the most active over the past few months.

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 include a wider discussion around implementing ProgPoW, which is likely to be released on ETH later next year.

In April, the ETC Labs dev team released plans to implement ECIP-1054, Atlantis, which 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 implemented on the main-net on 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: ethereumclassic/go-ethereum

Source: etclabscore/go-ethereum

Source: ethereumclassic/ECIPs

Source: etclabscore/ECIPs

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 in September.

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 for the ETC/USD market, the 50-day and 200-day exponential moving averages (EMAs) have been bearishly crossed since July 24th. The 200-day EMA at US$6.06 should now act as resistance. Significant volume support (horizontal bars) sits at the current local low of US$4.30. There are currently no active Relative Strength Index (RSI) or volume divergences.

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 90% of open interest. 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 downside, 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$8.79. 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 in Price. A long entry will not trigger until the spot price is again above the Cloud.

Lastly, on the daily ETC/BTC chart, trend indicators suggest a slowing of the bearish trend as the spot price has not made a lower low for the past 85 days. The 50-day and 200-day EMAs have been bearishly crossed for over 600 days. A mean reversion target of 75,000 – 82,000 sats is suggested both by the 200-day EMA and the flat Kumo. Based on the historic volume profile, the spot price is unlikely to break above the 0.00115 BTC zone any time in the near future. Open interest on Bitfinex is currently 50% short (not shown).

Conclusion

Despite the successful implementation of Atlantis earlier this year, the development of the Ethereum Classic (ETC) chain remains several months behind Ethereum (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. ETC may raise to prominence after ETH changes it’s consensus algorithm to ProgPoW because ASIC miners will look to turn a profit on a mineable chain. 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$4.00 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 not made a lower low over the past 90 days, suggesting waning bearish momentum. A mean reversion target of 75,000 – 82,000 sats is suggested both by the 200-day EMA and the flat Kumo.