Ethereum Classic Price Analysis – On the on ramp

Ethereum Classic (ETC) has remained relatively stable over the past year in relation to other cryptocurrencies. ETC is down a mere 68% from the all time high set in January. The market cap stands at US$1.56 billion, with US$341 million traded in the past 24 hours putting the cryptocurrency at number 14 in the BraveNewCoin market cap table.

ETC was born out of a contentious hard fork following the Decentralized Autonomous Organization (DAO) hack in June 2016, which lead to ~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 crowdsale in April 2016. As of May 2016, the fund held ~14% of all the Ethereum total supply, roughly ~US$150 million, from 11,000 investors.

A hard fork of the original Ethereum chain quickly followed to recoup the hacked funds, and the original chain survived as 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 ETC issuance and decrease the ETC block reward.

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. A subsidiary of DCG, Grayscale, is a trust comprised of several funds which issue shares backed by crypto. The trust issues shares for an ETC product which currently has US$70.5 million assets under management representing ~4,682,000ETC, or 4.5% of all available ETC.

Post-DAO fork, ETC transactions per day have steadily increased and average transactions fees have remained relatively stable. Like all other cryptocurrencies, transactions peaked earlier this year, declined, and have begun to increase again. ETC currently clears ~49,000 transactions per day, compared to ETH’s ~538,000. Fees on ETC have remained only a small percentage of those associated with ETH, but this is largely a result of fewer transactions and dApp activity.

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio has been rising since April, and is currently flirting with record highs. This increase suggests that the rise in price is not supported by the economic activity of the blockchain, or that the coin is overvalued based on its utility. However, inflection points in NVT can be leading indicators for a reversal of an asset’s value.

Hash rate and difficulty have been tumultuous over the past year, with both making record highs over the past few weeks. The “difficulty bomb,” or artificial increase in mining difficulty, was removed with ECIP 1041 on May 29th of this year. The change is designed to increase mining profitability and to stabilize the network.

With continued declines in hash rate and increasing difficulty, there was a risk of a chain death spiral, whereby block times get longer and longer, block rewards continue to decrease, and more hash rate leaves the network. A recent spike in hash rate was likely influenced by market sentiment surrounding ETCs listing on Coinbase. The current ETC hashrate is now ~5% the hash rate of ETH.

While there are no plans to implement Proof of Stake consensus protocol on the ETC blockchain, GETH 5.5.0 will be released on July 28th, and there is an upcoming ETC Summit in Seoul, South Korea on Sept 12-13th. The ETH project on GitHub has had a cumulative 921 commits over the past year. 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.” Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity.

ETH exchange traded volume in the past 24 hours has predominantly been led by Tether (USDT), Bitcoin (BTC), and U.S. Dollar (USD) pairs. The majority of trading occurred on OKEx, Binance, and Huobi. ETC has had several exchanges announce listing the crypto asset over the past year, including being added to Binance, Robinhood, Coinbase, and a USD pair added to Bittrex. Coinbase had briefly enabled ETC withdrawals post-DAO fork for those holding ETH on the platform at that time.

Technical Analysis

ETC has been listed on several new exchanges recently, which can make charting the pair difficult due to the limited price data for the newer listings. ETC has been listed on Poloniex for the longest duration of time, but many users have left Poloniex for other exchanges. Ideally, an index exists to merge and smooth out all the data.

Despite the disrupted data, chart patterns, exponential moving averages (EMAs), and Ichimoku Cloud can be used to determine entry points and targets for trades. Further background information on the technical analysis discussed below can be found here.

On the daily chart, price structure is reminiscent of a messy and slow forming Head and Shoulders reversal pattern. The hallmarks of this bearish pattern include a descending volume profile and a series of three extreme highs, with the second high exceeding the first and third high. The volume profile is likely highly noisy over the past year due to the variable fundamentals detailed above. If the pattern breaks downward, as expected, a stop loss should be placed near the recent local high of ~US$21.

Long/Short open interest on the ETC/USD pair leans heavily to the long side at 95:1. Long/Short open interest on the ETC/BTC pair is net short. This suggests that sentiment is bullish on the USD pair but remains bearish on ETC’s ability to make gains on BTC.

The 50/200EMAs are currently bearishly crossed. A recent test of the 200EMA preceded the ETC listing on Coinbase. A bullish cross of the 50/200EMA and/or breach of the 200EMA can be considered bullish entry signals. The are no active bullish or bearish divergences.

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 singled settings (10/30/60/30) for quicker signals are neutral to bearish; price is below Cloud, Cloud is bullish, TK lines are touching, and Lagging Span is below Cloud and price. A traditional long entry will not trigger until price is above the Cloud. Due to the amount of noise in both price and Cloud using these settings, using higher timeframe signals or more data capture is likely more prudent.

The status of the current Cloud metrics on the daily time frame with double settings (20/60/120/30) for more accurate signals are mainly bearish; price is below Cloud, Cloud is bearish, TK cross is bullish, and Lagging Span is below Cloud and price. Again, a traditional long entry will not trigger until price is above the Cloud. A recent touch of the long flat Kumo represents both resistance and a magnet for price. A bearish TK cross below Cloud will trigger a short entry.

On the daily ETC/BTC pair, volatility has been high in recent months, which coincides with a wide ranging price zone. The volume profile of the visible range (VPVR) since August 2016 shows most of the volume has occurred near the current price. VPVR suggests that buyers will likely come into the market at or near this level, as they have done in the past. There is a long term resistance turned support horizontal at 0.00165BTC.

On the two day ETC/ETH pair, price appears to have broken a multi-year Falling Wedge (FW) coupled with a completion of an edge to edge (E2E) Cloud trade. An FW is a bullish reversal pattern represented by a tightening price range in the downward direction until sellers are exhausted. An E2E Cloud trade triggers when price closes in the Cloud, with the target being the opposite edge of the Cloud. Both the FW and E2E are highly suggestive of future bullish continuation for the pair. A price close above the Cloud, if it should occur, will be the first in the history of the pair.

Conclusion

The ETH vs ETC debate began over a matter of principle regarding the immutability of the blockchain, as well as speculators and miners seeking an opportunity to profit from a forked chain. ETC has continued to survive and begun to thrive after the removal of a difficulty bomb which threatened to shut down the network entirely. ETC has also benefited from the continued tailwind of exchange listing announcements, but whether access to fiat on-ramps will make a difference in price remains to be seen.

Technicals for the ETC/USD pair suggest that price is teetering on the precipice of a large drop due to its proximity to a long term support trend line. The ETC/BTC pair has no actionable bullish or bearish entry signals at the current time due to the large, sideways range. The ETC/ETH chart suggests that ETC will continue to gain market share over ETH over the next few months.

The ETH vs ETC debate began over a matter of principle regarding the immutability of the blockchain, as well as speculators and miners seeking an opportunity to profit from a forked chain. ETC has continued to survive and begun to thrive after the removal of a difficulty bomb which threatened to shut down the network entirely.