Ethereum Price Analysis – 80 week Lows

Ethereum (ETH) has dropped almost 50% in the past month and is currently 92% down from the record high set in January. The market cap stands at US$11.32 billion, with US$1.13 billion traded in the past 24 hours. This leaves ETH ranked third by market cap, below XRP (XRP) and above Stellar (XLM). Overall, market caps for most of the top cryptocurrencies have declined significantly throughout the year.

The current roadmap for Ethereum includes major changes to the consensus algorithm and block rewards in the coming months. EIP 1234 will reduce the block reward to 2 ETH/block and delay a difficulty increase, and will be implemented with the Constantinople hard fork. While the update was slated for release on October 30th, problems discovered while testing the changes have pushed back the hard fork to January 2019 at the earliest.

Further down the pipeline is Casper, which will drastically alter the ETH network, reducing the inflation rate significantly. The inflation rate (chart below) in 2017 and 2018 was 14.75% and ~7.40% respectively. Projected inflation rates for other cryptocurrencies at the start of 2019 include; ETH 4.70%, BTC 4.11%, BCH 3.77%, LTC 8.97%, ETC 8.60%, DASH 9.02%, and XMR 6.54%.

Source: coinmetrics.com

Vitalik Buterin’s hybrid version of Casper will change the consensus algorithm from solely PoW to PoW and PoS and is set for a 2020 release. A white paper for Vlad Zamfir’s Correct-by-Construction Casper was released in November. The fork will also change the block rewards for PoW and PoS to 0.6 and 0.22 ETH/block, respectively. The full implementation of Casper is slated for release in 2022 and will remove PoW altogether, leaving the PoS block reward at 0.22 ETH/block for stakers. Currently, there are no plans to cap the total amount of ETH created.

On the network side, hash rate and difficulty have both continued to decline significantly since early August, and are now at levels last seen in February 2018. Difficulty is now lower than the peak in October, before the difficulty reduction. Block times, block reward, price, and transaction fees all effect mining profitability, which is currently at all time lows and falling.

The network node count is currently 11,683, 42% of which are located in the United States. Many nodes are run by Infura, which provides access to developers due to cumbersome hardware requirements. ETH has several sync modes, with fast sync requiring ~117GB of storage and full sync exceeding 1TB of required storage. However, node services like Infura add a degree of centralization to the network but become increasingly necessary as blockchain size increases.

Source: bitinfochart.com

The current number of transactions per day on the network (line, chart below) have been flat over the past few weeks at around 550,000. The average transaction value per day had been falling throughout most of the year but has increased to ~US$1,000 over the past few weeks. This value is still sharply down from a high of US$20,000 in June 2017. Pending transactions are rising and are currently above 100,000, with the average transaction fees declining to a new yearly low at US$0.12 (not shown).

Source: coinmetrics.io

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has begun to fall after breaking above 40. Inflection points in NVT can be leading indicators of a reversal in asset 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. An NVT holding below 20 would likely signify bullish market conditions.

Daily active addresses (fill, chart below) have declined since January and are sitting at yearly lows, but remain well above levels seen throughout 2017. Active and unique addresses are important to consider when determining the fundamental value of the network using Metcalfe’s law. Unique ETH addresses continue to grow at a rapid rate, and are currently at almost 49 million. While addresses can never be deleted, this metric indicates a growing use of the Ethereum blockchain. ETH-related job postings on LinkedIn are slightly above 391, down from 1,000 postings in July. There are also more than 1.18 million members in almost 4,000 Ethereum groups on meetup.com.

Source: coinmetrics.io

According to CoinSchedule, there have been a total of 983 ICOs thus far in 2018, which have cumulatively raised a total of US$20.33 billion. The month of May saw the most ICOs, with 144, while November saw the least, with 51. In 2017, ICOs raised a mere US$3.88 billion, with only US$95 million raised in 2016. Total raises in 2018 still exceed US$10 billion even when the top 10 raises are excluded. However, ICO raises have dropped significantly over the past few months.

Last week, the U.S. Securities and Exchange Commission (SEC) announced settlements against Floyd Mayweather Jr. and DJ Khaled, who have both promoted Centratech, for failing to disclose payments they received for ICO promotions. This was the first enforcement action of it’s kind from the SEC, but likely not the last. The SEC also barred Mayweather and Khaled from promoting securities for the next few years.

Meanwhile in Asia, several ICO-related announcements were made over the past week. In South Korea, where ICOs are currently banned, the new finance minister revealed plans to remove the prohibition and begin taxation of ICOs. In China, where ICOs are also banned, the chief of Beijing’s Municipal Bureau of Finance said this week that fundraising related to Security Token Offerings is also illegal.

Source: coinschedule.com

The top Ethereum based dApps over the past week, ranked by volume, continue to be dominated by decentralized exchanges and gambling apps. IDEX and ForkDelta had the highest number of users over the past week. Among all dApps in the game category, CryptoKitties continues to dominate weekly user, volume, and transaction metrics. Over the past year, the number of active dapps have increased each quarter while active users have declined each quarter. Overall, ETH has a considerably lower number of users compared to other dApp platforms like EOS (EOS) and Tronix (TRX)

Source: dappradar.com

Despite ETH pushing yearly lows, many dApps and large ICOs continue to hold large amounts of ETH. Eight projects continue to hold over 100,000ETH, including; DigixDAO, Golem, SingularDTV, Status, Gnosis, Aragon, Iconomi, and iExec RLC. In total, over three million ETH or ~3% of all the circulating supply of ETH continues to be held by ICOs.

Over the past month, almost ~300,000ETH (red bars, graph below) has been moved out of ICO treasuries. Aragon moved ~50,000ETH in late November. Generally, coins are not removed from cold storage and sent to an exchange for any other reason than to sell, although moving coins in and of itself does not automatically mean the coins will be sold.

Source: app.santiment.net/projects/ethereum

Turning to developer activity, over 990 developers have contributed a cumulative 28,302 commits to the ETH project on GitHub 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," 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.

Most of these commits occured in Solidity repo (chart below). Solidity is the programming language used to write smart contracts on Ethereum. Overall, over the past year, ETH related repos have had more commits than any other crypto project.

In the markets, ETH exchange traded volume in the past 24 hours has predominantly been led by the Bitcoin (BTC), Tether (USDT), and U.S. Dollar (USD) pairs. The majority of trading occurred on OEX, RightBTC, LBank, and OKEx. In Asia, the Yuan (CNY), the Korean Won (KRW), and the Yen (JPY) pairs hold essentially no premium over the USD pairs. Together, all three regions show relatively low interest in their fiat pairs, with ~3% of the total traded volume combined. Dai and TUSD volume has continued to slowly increase over the past few weeks but continue to remain a fraction of total traded volume.

The over the counter (OTC) exchange LocalEthereum facilitated 2,266ETH, or ~US$245,000, in transaction volume over the past week, which is down when compared to the prior two weeks. In comparison, LocalBitcoins exchanged 12,112BTC, or ~US$47 million, in the past week. While traditional OTC desks often require a minimum order of between US$100,000 and US$250,000, these peer-to-peer marketplaces have no minimum order size.

Google Trends data for the term "Ethereum" remain down sharply over the course of the year and is currently sitting at yearly lows (not shown). A slow rise in searches for "Ethereum" preceded both highs in June 2017 and January 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

The 50/200EMAs on the daily chart have been bearishly crossed since June, resulting in an 82% decline since. This bearish "Death Cross" and the opposing bullish "Golden Cross" are significant events for many traders and dictate the direction of the trend going forward. The previous Golden Cross in May was overshadowed by a bearish reversal pattern, the head and shoulders. Although the EMA cross is bearish, the 200EMA will act as a mean reversion level for price, currently at US$300.

Total long/short open interest is net long and near record highs on Bitfinex, with long positions at relatively elevated levels but decreasing. Shorts are also near record highs, but have also begun decreasing recently. A significant price movement downwards will result in an exaggerated move as the long positions will begin to unwind. While there are no active RSI or volume divergences, RSI in late November was at the lowest level ever recorded on the daily timeframe. Bitfinex daily ETH volumes were also at a record high in late November.

Price is also below a bearish Pitchfork (PF) with anchor points in December, March, and May, suggesting that the PF is now invalid. While price is bound within the PF, the the median line (yellow) is continually tested as as either support or resistance. A drop below the PF suggests a hastening of the bear trend. Price is also currently sitting at 80-week lows with no immediate horizontal support in previous price action.

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 faster signals are bearish; price is below Cloud, Cloud is bearish, TK cross is bearish, and Lagging Span is below Cloud and below price.

A traditional long entry will not trigger until price is above the Cloud. Price has not been above the Cloud since May. If price does not make lower lows, a TK C-Clamp may form, suggesting mean reversion to the Kijun at US$161.

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

Again, a traditional long entry will not trigger until price is above the Cloud. An imperfect Kijun bounce on November 9th represented the ideal short entry. As price moves further and further from the Kijun, a mean reversion back to the Kijun becomes more and more likely. If price does not make lower lows, a TK C-Clamp may form, suggesting mean reversion to the Kijun at US$161.

Lastly, on the ETH/BTC pair, much of the same analysis applies to the ETH/USD pair: the 50/200EMAs remained bearishly crossed and the Cloud is entirely bearish with a recent Kijun bounce. Both trend indicators have been distinctly bearish since mid-July. The ETH/BTC ratio has historic price support and pivot point support near the last local low of ~0.026-0.027BTC. A pivot point is calculated as an average of the high, low, and close from the previous month. A move below the low of 0.0237BTC set in December will likely continue much lower due to lack of historical price support in that region.

Conclusion

The Ethereum network fundamentals have essentially been stagnant preceding the reduction in ETH issuance slated for January 2019. Further adjustments to the ETH consensus algorithm are not due for at least another year. Transactions per day and average transaction fees have been flat over the past few weeks, while pending transactions have increased significantly. This picture indicates potential difficulties for scaling in the near term, especially if transactions per day increase significantly.

In regards to ICOs and unregistered STOs, regulators worldwide are just beginning to sink their teeth into the violations of the past two years, which will likely signify many more enforcement actions in the coming months. Many ICOs also continue to hold vast quantities of ETH, which represents additional selling pressure if those ICOs need to sell ETH to cover operational costs.

Technicals will likely remain bearish well into next year. Based on trend indicators, including EMAs, Pitchforks, and Ichimoku Cloud, there are no indications of trend reversal anytime soon. However, the significant bearish momentum in late November will likely not be matched again any time soon. Therefore, any lower lows in price will very likely be marked with a bullish divergence, suggesting the high likelihood of a relief rally near the US$150 level. The US$100 remains an important level of psychological support and also represented psychological resistance in May 2017.