Ethereum (ETH) is a distributed ledger and decentralized computing platform with smart contract capabilities. The crypto asset is currently second on the BraveNewCoin market cap table, at US$28.08 billion, with US$3.57 billion traded in the past 24 hours. The current spot price is down 82% from the all time high set in January 2018. However, the crypto asset has gained 220% since the December lows.
The ETH project was proposed by Vitalik Buterin in 2013, with a crowdsale occurring in 2014. Other ETH co-founders include Anthony Di Iorio, Charles Hoskinson, Mihai Alisie, Amir Chetrit, Joseph Lubin, Gavin Wood, and Jeffrey Wilke. The ICO raised nearly US$16 million, where each ETH token was sold for US$0.31 each. The ETH ICO was one of the most profitable in history. The mainnet went live in July 2015 with 72 million premined coins, which currently accounts for 67.7% of the circulating supply.
Thus far, protocol upgrade milestones have included; Olympic in May 2015, Frontier in July 2015, Homestead in March 2016, Metropolis Part 1: Byzantium in October 2017, and Metropolis Part 2: Constantinople in February 2019.
The Constantinople hard fork, successfully implemented on February 28th, included five EIPs; lower gas fees for smart contracts (EIP 1283), improved scaling for off-chain transactions (EIP 1014), improved smart contract execution (EIP 145 & EIP 1052), a "Difficulty Bomb" delay for 12 months (EIP 1234), and reduced mining rewards from 3 ETH to 2 ETH per block (EIP 1234).
The next upgrade, Serenity, is currently in development but does not have an expected release date. Future development includes a full rewrite and redesign, resulting in Ethereum 2.0. Both versions will likely exist concurrently for several years before a migration is completed.
ETH 2.0 includes Sharding and Casper, which will drastically alter the network. Sharding refers to a scaling solution for horizontally partitioning data within a database. The full implementation of Casper, slated for release in 2022, will remove Proof of Work (PoW) from the network, leaving a Proof of Stake (PoS) block reward at 0.22 ETH/block. Currently, there are no plans to cap the total amount of ETH.
While the network is still PoW based, a proposal called Programmatic PoW (EIP-1057) has gained favor in the community and is likely to be implemented in the next hard fork, later this year pending a successful audit. ProgPoW is designed to reduce ASIC mining on a network by increasing the efficiency of GPU and FPGA mining. Innosilicon and Bitmain both currently have three ASIC miners available for the EtHash algorithm, while a new ASIC mining chip from a third mining company, Linzhi, is currently in the research and development phase.
If implemented, EIP-1057 will make all current Ethash ASICs unable to mine on the ETH chain. Those using Ethash ASICs may choose to continue mining the pre-fork chain. Another possibility is that ASICs will be used to mine the Ethereum Classic (ETC) chain, which also uses the Ethash algorithm. In any case, the goal of decreasing ASIC use on the ETH chain will be successful, although likely temporary.
For the moment, hash rate (solid line, chart below) and difficulty (dashed line, chart below) have remained stable since March. Both remain higher than 2017 levels and have begun rising above multi-month lows. Mining profitability is also near all-time lows but has begun rising in line with market prices. If ETH prices or mining profitability fall significantly, hash rate will likely follow suit. All ETH ASICs are currently profitable at an electricity cost of US$0.13/KWh.
Average block times are currently 13.21 seconds, which is nearly the fastest in ETH history. The block count per day (line, chart below) has therefore followed suit. There are 106,354,353 ETH in circulation with inflation per annum currently at 4.67% (fill, chart below), which is slightly higher than pre-Constantinople levels, but essentially the lowest inflation levels ETH has ever seen. Despite record fast block times, pending transactions spiked to over 100,000 on June 1st and currently sit around 24,000.
The network currently has 6,341 active network nodes, 29% of which are located in the United States. Due to the somewhat cumbersome hardware and time requirements of running a node, many of these nodes are run by Infura, or similar node servicers, who provide access to the network for developers. These services have become increasingly important for ETH as the blockchain continues to grow. ETH nodes have several sync modes, with fast sync requiring approximately 290GB of storage and a full archival node requiring nearly 2.81TB of storage.
The number of on-chain transactions per day (line, chart below) has decreased slightly over the past week, and is currently around 876,000. This is up from a yearly low of 430,000 in February, but down from the record high of 1.24 million on January 9th, 2018. The average transaction fee (fill, chart below) is currently US$0.15, which is down from a pre-Constantinople level of above US$0.20. However, on February 19th and March 18th, the average transaction fee spiked to US$1.22 and US$0.63 respectively. Overall, fees are lower than during the entirety of 2018.
The 30-day network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has ranged from 30 – 70 since March 2018, and is currently 38. 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 uptrending NVT with an uptrending ETH price suggests overbought conditions, or that the NVT metric may need to be retooled to better understand market variables. An NVT holding below 20 would likely signify bullish market conditions, as was the case from April 2017 to May 2018.
Monthly active addresses (MAAs) have increased to over 360,000, marking a new 12 month high (fill, chart below). MAAs are up from a yearly low of 192,000 in February, but down from an all time high of nearly 580,000 in January 2018. Overall, MAAs remain above levels seen throughout 2017 and earlier. Spikes in MAA in 2016 were likely due to a transaction mixing service being used at that time. Unique ETH addresses continue to grow at a rapid rate, and currently exceed 67.7 million (not shown). However, addresses can only be added to the network, and never be deleted.
Globally, ICOs are also increasingly moving away from public sales, likely due to fear of regulatory reproach and a shifting regulatory landscape. 2018 saw both the highest number of ICOs, at 1,075, and the largest USD sum raised in one year, at US$21.48 billion. Thus far in 2019, there have been 142 ICOs, raising a total of just over US$2.5 billion. In contrast, the total USD raise January 2018 was US$2.15 billion. The month of May marks an almost 12 month high for ICO funds raised. At the same time, Initial Exchange Offerings (IEO), where crowdsales are facilitated by an exchange, are increasing in popularity. However, these IEOs typically have a native blockchain or do not use ETH.
The top Ethereum based dapps over the past week, ranked by volume, continue to be led by gambling and exchange dapps. IDEX had almost 91,000 transactions in the past week, more than any other ETH dapp. On June 8th, IDEX trade settlement was delayed due to congestion on the ETH blockchain. In the games category, 0xUniverse has had the most transactions over the past week while HyperSnakes has had the most daily active users.
Overall, ETH has a considerably lower number of users and transactions compared to other dapp platforms like EOS (EOS) and Tronix (TRX), both of which have no transaction fees. On February 9th, Twitter user Kevin Rooke pointed out that of the 1,375 ETH Dapps, 86% had zero users and 93% had zero transaction volume.
As ICOs and crowd sales have faded in terms of both quantity and size, the Decentralized Finance movement, or DeFi, has increasingly gained in popularity. In total, US$559 million is currently locked in DeFi projects. Most of this held by lending dapps, with the MakerDAO (MKR) alone currently holding 1.53% of the circulating ETH supply, which is down from 2.12% earlier this year.
Dharma, a lending platform, launched a non-custodial implementation of lending and borrowing this week, where users can earn 2.5% yearly interest on ETH and 8% on Dai, a stablecoin created through the MakerDAO with a soft peg to the U.S. Dollar. The service provides subsidized crypto loans without requiring a bank account or credit check at a rate of 0.1% on ETH and 4% on Dai.
ICO treasury balances shrank significantly throughout 2018, both in USD value and in ETH quantity. December saw the largest outflows of the year at ~484,000 ETH. Since January 2019, ICOs have withdrawn just under 443,000 ETH from their treasuries. ICOs and dapps continue to hold 2.58 million ETH, or 2.42% of the circulating ETH supply.
In November 2018, Aragon, a project focused on decentralized governance, took a novel approach by moving 40,000 ETH into a US$1 million loan using the Dai stablecoin, through the MakerDAO, to protect against market volatility. In April and May 2019, Aragon withdrew 12,000 ETH and 23,000 ETH from their treasury, respectively, and continues to hold 136,000 ETH.
In December 2018, the Kyber Network, a decentralized token swap platform, saw outflows totaling 50,000 ETH, one of the largest of 2018. In March this year, Tezos withdrew 121,418 ETH, the largest withdrawal of 2019 thus far. DigixDAO, a project which has attempted to tokenize gold deposits, continues to hold just over 375,000 ETH, which is valued higher than the market cap of the entire DigixDAO project token. The frozen Polkadot wallet holds 306,000 ETH, which is the third highest holding of all projects.
Turning to developer activity, almost 1,000 developers have contributed a cumulative 28,000 commits to the ETH project in 200 GitHub repos over the past year. 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.
Most of the commits over the past year have occured in the Solidity repo (top chart). Solidity is the programming language used to write smart contracts on Ethereum. The ETH 2.0 repo has also become active over the past few months (bottom chart), with most of the commits in this repo coming from devs Danny Ryan, Justin Drake, and Vitalik Buterin. A potential ETH 2.0 genesis block launch is currently slated for January 2020. Overall, ETH related repos have had more commits than any other crypto project over the past year.
In the markets, ETH exchange traded volume over the past 24 hours has predominantly been led by the Tether (USDT), Bitcoin (BTC), and U.S. Dollar (USD) pairs. Non-USDT stablecoin volume has slowly increased in recent weeks, including Dai (DAI), Paxos-Standard (PAX), Gemini-dollar (GUSD), and TrueUSD (TUSD), but continues to remain a fraction of total traded volume.
In Asia, the Korean Won (KRW), Yen (JPY), and Yuan (CNY) pairs have USD prices for ETH at US$269, US$264, and US$263 respectively. Together, all three regions show relatively low interest in their fiat pairs, with about 2% of the total traded volume combined. A return of the premium in South Korea signifies a return to bull market conditions.
The over the counter (OTC) exchange LocalEthereum facilitated 1,813 ETH in transaction volume over the past week, which is down significantly from earlier in the year. In comparison, LocalBitcoins exchanged 7,436 BTC last week according to coin.dance. Earlier this month, LocalEthereum removed fees for cash trades whereas LocalBitcoins removed the cash trade option altogether due to regulatory pressure.
Throughout 2018, ETH traders on the exchange decreased while volumes increased. The two spikes in volume on November 25th and December 7th correspond with local lows in ETH price. The spike in volume on February 20th preceded the fork on the 28th. 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" has increased slightly over the past two months when compared to the previous year, but overall remains down significantly from early 2018. Searches for “Ethereum” fell drastically throughout 2018 whereas a slow rise in searches for "Ethereum" preceded both highs in June 2017 and January 2018, likely signaling 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.
Since mid-May, the ETH/USD spot price has been held within a tight consolidation range. As the macro bull trend crystallizes, roadmaps for price can be found on high timeframes using exponential moving averages (EMAs), volume, 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 EMA and 200-day EMAs were bearishly crossed for almost a full year, and subsequently crossed bullishly on May 19th. The previous bullish “Golden Cross” in May 2018 was overshadowed by a bearish reversal pattern, the head and shoulders. The 50-day EMA and 200-day EMA should now both act as support, at US$238 and US$206 respectively. A high volume zone also sits in between the EMAs at US$216. There are currently no active RSI or volume divergences.
The long/short open interest on Bitfinex (top panel, chart below) is currently 82% long. Over the past few days, both long and short positions have increased slightly. A significant price movement downwards will result in an exaggerated move further, as the long positions will continue to unwind. This is known as a “long squeeze.” However, Bitfinex long/short ratios have historically had little bearing on price action for ETH.
The current spot price also sits within a bearish downward Pitchfork (PF) with anchor points in December 2017 and April and May 2018. In April, price breached the median line (yellow) for the first time since August 2018. Upside resistance sits at US$300 with near term support at US$185. Based on the width of the PF, price may breach the PF within the current week. If price fails to do so, a return to the median line at US$107 is possible within the next few weeks.
Price has also formed a continuation pattern, a bullish flag. Hallmarks for this consolidation include a horizontal zone with equal highs and lows, as well as a descending volume profile. The pattern carries a 1.618 fib extension and measured move of US$340-US$391, respectively. This zone also stands within a large historical resistance/support level.
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, are also 100% bullish; price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above Cloud and above price. Buyers will likely re-enter the market near the Kijun support, currently at US$220. The bull trend will remain intact as long as price remains above the Cloud.
Lastly, on the ETH/BTC pair, trend indicators are bearish. On the daily chart, Cloud metrics using doubled settings are bearish, with a Kumo breakout below the Cloud occurring over the past few days. The 50-day EMA and 200-day EMAs are currently bearishly crossed with price having been denied at both the 50-day EMA and 200-day EMA several times this year. A bullish 50/200 EMA cross, as well as a Kumo breakout, should act as a strong buy signal for many traders, if it occurs.
ETH/BTC open interest (top panel, chart below) on Bitfinex is almost exclusively dominated by long positions, with long positions reaching a new sixteen-month high. There are currently no active RSI or volume divergences. In the near term, any bullish momentum is unlikely to drive to the 200-day EMA at 0.034 BTC and any bearish momentum is unlikely to exceed psychological and historic volume support at 0.025 BTC.
On-chain fundamentals for ETH continue to improve as transactions per day and daily active addresses have hit multi-month highs. Inflation has continued to decrease since the Constantinople hard fork in February with block times near an all-time low. Hash rate, difficulty, and mining profitability have all also increased week-over-week with the ProgPoW change likely coming by year’s end. Although ETH 2.0 is still in the early stages of development, the changes are actively being discussed, debated, and coded, with a phase 0 release slated for January 30th, 2020.
Technicals are currently strictly bullish for the ETH/USD pair and strictly bearish for the ETH/BTC pair. ETH/USD is currently held within a tight consolidation zone suggestive of bullish consolidation toward US$340-US$400. ETH/BTC has essentially had the same range for over 250 days but trend metrics are leaning strongly bearish. Support for ETH/USD and ETH/BTC currently stands at US$220 and 0.025 BTC, respectively.