Ethereum Price Analysis – Bear trend persists

Ethereum (ETH) is now down 50% since the beginning of May. The market cap now stands at US$43.73 billion, with exchange-traded volume of US$3.4 billion in the past 24 hours.

Transactions per day have essentially been flat since the end of April, with average transaction fees rising slightly in the same period. Pending transactions have spiked to more than 40,000 twice this week, while the average transaction fee has remained stable.

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio has also been in decline, after surpassing a two year high. Inflection points in NVT can be leading indicators for a reversal of an asset’s value. A clear downtrend in NVT suggests a coin is undervalued for its utility and should be seen as a bullish price indicator.

Hash rate and difficulty increases have increased slightly since June, and both have posted new records highs. ETH Proof of Work (PoW) mining will eventually become entirely impossible through the Casper Proof of Stake (PoS) transition. Vitalik Buterin’s Casper FFG is slated to go live as early as September of this year. This change also comes with a significant reduction in inflation, to about 500,000 ETH per year or 0.22 ETH per block.

In a podcast earlier this week, Buterin discussed the scaling roadmap, saying, “if you’re impatient, choose channels and plasma […] the full dream of sharded PoS with all the different properties we want will probably come online in stages over the next few years.”

According to coinschedule.com, 517 Initial Coin Offerings (ICOs) in 2018 have raised almost US$12 billion. The total for last year was US$3.88 billion, with US$95 million raised in 2016. Aside from March, these funding rounds have not surpassed US$2 billion each month. As the ETH price falls, ICOs holding ETH and not diversifying will have suffered from substantial losses so far this year.

According to dappradar.com, the top decentralized applications (dApps) by volume over the past week have all been decentralized exchanges; IDEX, Bancor, and ForkDelta. Decentralized exchanges help mitigate custodial and regulatory risk, but often lack the liquidity most traders have come to expect while using centralized exchanges. Most of the other top 10 dApps are related to exchanges or marketplaces for peer-to-peer trading.

A Consensys energy dApp focused on creating an energy-sharing marketplace, Grid+, was recently given approval to sell electricity in the state of Texas. Grid+ created 300 million GRID tokens in 2016. While 90 million were allocated to for public token sale, 32.24 million tokens were sold for 0.0037ETH each.

An event ticketing protocol, Aventus (AVT), also reached a milestone and launched on the Ethereum mainnet this week. AVT aims to decrease inflated secondary ticketing markets and decrease counterfeit ticket sales by using blockchain-based security solutions, while increasing ticket sales by targeting audiences. Aventus aims to disrupt ticketing industry giants like StubHub, Ticketmaster, and Eventbrite. Aventus created 10 million AVT tokens in September 2017, reserving 60% for the public sale, of which 100% were sold at a price of 0.01086957ETH each.

A self-proclaimed adult entertainment ecosystem, SpankChain (SPANK), joins the fray as well this week, releasing a public beta platform on the Ethereum mainnet. The project aims to eliminate third party intermediaries and unfair payment practices in the adult entertainment industry. Using Vynos and state channels, anonymous payments are processed on the ETH blockchain. SpankChain created 1 billion SPANK tokens in October 2017, with 60% reserved for public sale, of which 50% were sold at a price of US$0.02375 each.

ETH exchange traded volume in the past 24 hours has predominantly been led by Bitcoin (BTC), Tether (USDT), and U.S. Dollar (USD) pairs. The majority of trading occurred on Bitfinex, OKEX, and Huobi. In Asia, the KRW trading pair holds a small premium, and CNY volume has exceeded JPY volume. Together, all three regions show relatively low interest in their fiat pairs.

The over the counter (OTC) exchange LocalEthereum facilitated 1,200ETH in transaction volume over the past week, according to dappradar. In comparison, LocalBitcoins exchanged 7,479BTC in the past week, according to coin.dance. Traditional OTC desks often require a minimum order of between US$100,000 and US$250,000, whereas these peer-to-peer marketplaces have no minimum order size.

Technical Analysis

ETH continues to push lower lows on less momentum, but nevertheless, the trend remains strongly bearish. Emerging actionable trading signals, as well as key support and resistance levels, can be gleaned using volume, Exponential Moving Averages (EMAs), Pitchforks, Ichimoku Cloud, and Pivot Points. Further background information on the technical analysis discussed below can be found here.

On the daily chart, volume continues to decline and the 50/200EMAs remain bearishly crossed. Open interest on Bitfinex is net short, while price is approaching the previous lows of early April. The region should again prove to be a strong support level. There is also a bullish divergence on RSI and volume, suggesting that bearish momentum is waning.

A bullish Pitchfork with anchor points in June 2017, January 2018, and April 2018 shows the previous local high being rejected at the pitchfork median line (ML). Price will continually attempt to return to the ML throughout any given trend. A breach of the ML on volume would suggest a move to the next diagonal resistance. Price currently sits on the last support diagonal. If price falls below this level, the Pitchfork will be invalidated.

A bearish Pitchfork with anchor points in January, April, and May has tightly held price in a downward channel. The Pitchfork is showing an ML of ~US$300 which should be considered a high probability target so long as price remains in the Pitchfork. A candle close above the top diagonal resistance will bullishly invalidate the trend.

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 bearish; price is below Cloud, Cloud is bearish, TK cross is bearish, and the Lagging Span is in Cloud and below price. A traditional long entry will not trigger until price is above the Cloud. The Kumo twist on July 5th suggests an opportunity for a bullish move to US$600 around this date.

The status of the current Cloud metrics on the daily time frame with double 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 price. A traditional long entry will not trigger until price is above the Cloud. The position of the TK lines suggests a potential C-Clamp, suggesting oversold conditions. If price does not make lower lows, a target of US$629 is likely. A flat Kumo at US$890 will also act as a magnet for price when price does return above the Cloud.

Lastly, yearly pivots, which are drawn on January 1st of each year and use the average of the high, low, and closing prices from the previous trading year, show support well below US$200 and resistance at US$533. Additionally, the volume profile of the visible range (VPVR) since April 2017 shows most of the volume in the current range occurred at US$280. VPVR suggests that buyers will likely again come into the market at or near this level.

Conclusion

Ethereum has entered an era of increased competition, from projects like EOS, HashGraph, DFINITY, and others. At the same time, several projects, dApps and protocols, are going live on mainnet. Scaling continues to be an ongoing concern in terms of both competition and the ability to handle the network load. It is an opportune time to discuss scaling solutions while network use is experiencing a nadir, otherwise, patchwork fixes and band-aids may lead people elsewhere, in both usage and future development work. The details of several scaling solutions, like the transition to PoS from PoW, are actively being discussed and conceptualized.

Technicals suggest active bear trend with no end in sight. Although the near term momentum indicators suggest oversold conditions, a reach for US$300 or lower is highly possible based on Pitchfork and VPVR. ICOs still holding large quantities of ETH will eventually need to make decisions regarding fund management, if they have not already, if prices do go much lower. This may create a snowball effect of temporary mass exodus and a substantial drop in ETH price. However, now that ETH is not a security in the eyes of U.S. regulators and ICO categorization begins to gain clarity, a second wave of ICOs focused solely on securitization may be the next impetus for a large-scale bullish momentum shift.

Ethereum has entered an era of increased competition, from projects like EOS, HashGraph, DFINITY, and others. At the same time, several projects, dAppsandprotocols, are going live on mainnet. Scaling continues to be an ongoing concern in terms of both competition and the ability to handle the network load. It is an opportune time to discuss scaling solutions while network use is experiencing a nadir, otherwise, patchwork fixes and band-aids may lead people elsewhere, in both usage and future development work. The details of several scaling solutions, like the transition to PoS from PoW, are actively being discussed and conceptualized.