Ethereum Price Analysis – Fundamentals battle technicals

Ether now has a US$27 billion market capitalization, while exchange traded volume trailing Bitcoin on most days. Price action over the last week has also closely followed that of Bitcoin, with a heavy correction and fast retracement.

While bitcoin is a decentralized digital currency, Ethereum is a distributed computing platform featuring smart contract functionality. The platform has been extensively used for ICOs, which leverage the Ethereum ERC20 standard. ERC20 allows for the implementation of a standard API for tokens within smart contracts, allowing anyone to spin up a new cryptocurrency within minutes. The increased load has on a few occasions reached the network’s full capacity for hours at a time.

The platform’s native token, Ether, has experienced dramatic gains since launching just over two years ago. The token started this year around ~US$10, peaked around US$400, and currently sits at ~US$280.

The Ethereum Foundation has been rapidly putting additional resources toward increasing the efficiency of the network, alongside planning longer-term changes that will greatly increase the network’s scalability.

Ethereum appears to be tackling scaling effectively, while the market leader bitcoin has been battling the issue for longer than Ethereum has been in existence. The inventor and figurehead of Ethereum, Vitalik Buterin, also carries a very public role. While Ether is not a stock, by any means, it is traded publicly in a free market, and investors are fickle and always want more users, higher sales, and better products.

To some extent, cryptocurrencies are no different. Although there is an Ethereum foundation and other Ethereum developers, Vitalik handles this CEO role with increasingly ever-present media appearances, and frequently updates the market through articles and blog posts.

On September 14th, Geth 1.7 was announced on the Ethereum blog. Geth is the command line interface used when running a full node. The update includes various protocol changes (EIPs) needed for an upcoming hardfork, Metropolis.

Vitalik spoke today at TechCrunch where he mentioned Ethereum will likely have Visa scale transaction capacity with Plasma and implementations in a couple of years. Ethereum handled ~5.74 transactions per second on average on September 6th, the most transactions it has ever handled in a single day.

Visa handles 2,000-4,000 transactions a second on average with the ability for the network to hold up to 56,000 transactions per second. PayPal handled 193 transactions per second on average in 2016.

Vitalik also mentioned that the Metropolis update, previously said to be released in late September, will be released in October.

Open mining interest, measured by hash rate and difficulty adjustments, continues to make all time highs. This suggests that Ether is both currently profitable to mine and that miners believe it will remain profitable for the immediate future.

Ether exchange traded volume has been led by Korean Won (KRW) markets over the past few days, with an almost equal share going to US Dollar markets. Yuan (CNY) trading has dropped off considerably in light of the recent increase in Chinese regulations towards cryptocurrencies.

There is no trading against the Yen (JPY) on any major exchange. Japanese traders appear to be using bitcoin to gain exposure to Ether.

Interestingly, Ethereum tweet mentions continue to rise, with a current peak on September 14th. Undoubtedly, this increase is due to the onslaught of ICOs and their subsequent ongoing social media campaigns.

Technical Analysis

It’s important to continually evaluate the current trend, if there is one, especially after a major pullback. One of the many ways to do this is understanding the Wyckoff Method.

Wyckoff accumulation and distribution are essentially the exact opposite of each other, occurring at the bottom or top of the trend respectively. There is no better example of Wyckoffian accumulation than that of Bitcoin from January 2015-2016.

If we invert the current daily Ether chart, which helps eliminate bullish bias, and compare this to the textbook example of the Bitcoin chart, we began to see a similar picture. A triple bottom, with a lower low on the inverted chart containing an extended wick, would support evidence of the spring needed to begin a markdown phase. Certainly something to watch for in the coming months. A sustained higher high would refute a distribution phase and support a continued markup phase.

On the weekly, price structure suggests a perfect ‘M for Murder’ pattern that just about smacks you in the face when not using log scale. A weekly close below US$140 would all but seal Ether’s fate downward.

Again comparing to Bitcoin, the M on the weekly in December 2013 was the beginning of the bear trend, albeit under much different circumstances.

We can further analyze the health of the trend with Ichimoku Cloud, a constant, auto-drawn indicator that quickly offers an immense amount of valuable information on any time frame. The Cloud is best used at higher time frames as more data generally provides more accurate signals and less false positives.

The indicator uses a moving average and dynamic support and resistance to make key zone projections. Its goal is to capture 80% of any given trend. While it may seem complicated when viewed on the price chart, it is really a straightforward indicator that is very usable.

As long as the price remains above the Cloud, sentiment remains bullish. Price in the Cloud indicates a neutral trend, and below the Cloud indicates a bearish trend.

The best entry signals for the Cloud occur when the trend is obvious, but 1 or 2 signals have yet to become confluent with a higher time frame trend:

When the Tenkan (T) is over the Kijun (K) sentiment is bullish. K over T would indicate bearish sentiment. When the Lagging Span (LS) is above the Cloud and above the price sentiment is bullish, below the Cloud and below price would indicate bearish sentiment.

Additionally, in any given trend, price will continually attempt mean reversion to determine support levels. These pullbacks or corrections can be seen through touches of the Kijun, also known as the Kijun bounce.

On the weekly time frame, using the singled Cloud, there is very clearly a lack of cloud support below the Kijun ~US$220. If this level breaks cleanly, expect the ~US$50 zone to be strong support. This breakdown would not likely occur in one weekly candle but occur over many months, just as Bitcoin unwound slowly after its M double top.

Alt coin prices generally move quicker than Bitcoin. Faster moving charts often require faster signals to keep up with price on higher timeframes. Trading signals should always be as fast as they can be without too much noise or false positives.

Using faster Ichimoku Cloud settings on the daily chart, 10/30/60/30, there is a bearish TK cross above the cloud, which is a long exit signal. Singled Cloud settings on the daily time frame have been back tested on more than 50 alt coins. The data shows superior and improved entries for Kumo Breakouts and TK Crosses when compared to the double 20/60/120/30 settings (data not shown).

On the daily timeframe, the singled Cloud is essentially neutral on mixed parameters. Price is above cloud, barely. TK cross and future Cloud are bearish, and LS is below price and above cloud. A long entry signal would trigger should Cloud and TK cross turn bullish with price staying above cloud.

The faster cloud settings on the daily remains decidedly bullish. Sustained day over day selling below the cloud would suggest further support tests.

On the four hour time frame, using the double cloud, signals are beginning to turn bullish again after the heavy pullback. A long entry signal will not trigger until the forward looking portion of the Cloud is bullish, with price above cloud. TK is currently bullish.

There is also a completed Adam and Eve double bottom, which has broken resistance and is attempting a throwback support test. According to Bulkowski, king of chart patterns, “The double bottom setup says that throwbacks which do not plunge below the confirmation price suggest better performance after the breakout.”

Another indicator we can use is the Pitchfork (PF). They provide diagonals that can be thought of as a potential reversal zones or support/resistance lines. The upper yellow diagonal zone being ‘most overbought,’ or the top bounds of the trend, and the lower yellow diagonal zone being ‘most oversold,’ or the bottom bounds of the trend.

The PF that makes the most sense has been strongly invalidated, unless a 1.75 extension is used. This would need to remain valid and hold support to be considered a valid uptrend indicator.

Conclusion

Fundamentals for Ethereum, barring Chinese ICO regulation, have never been brighter. Several protocol updates are due in October through a hard fork and a roadmap to address scalability issues is on the horizon. Ethereum continues to gain awareness through the worldwide scope of the ICO market.

Technicals tell a slightly different story. The most concerning pattern for long term Ether holders would be the large double top on the high timeframe charts, which do not scream bullish continuation, no matter how hard you try. An extended months long downtrend would likely bring Ether to the psychological support of ~US$50 minimum. All eyes on the Adam and Eve resistance turned support throwback in the near term.