Ethereum Price Analysis – ICO activity continues to be relatively strong

Ethereum (ETH) has remained relatively stable over the past week, despite two days of heavy volume. Overall, the crypto asset remains down 86% from the US$1,420 record high on January 13th. The market cap stands at US$20.85 billion, with US$960 million traded in the past 24 hours.

On the network side, the current number of transactions per day on the network (line, chart below) stands at 530,000, up from a yearly low of 500,000. Average transaction value (fill, chart below) has plummeted to ~US$740, down from a high of US$20,000 in April 2017. Pending transactions are currently rising and above 90,000 with average transaction fees declining near yearly lows at US$0.19 (not shown).

Source: CoinMetrics.io

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has been in decline since June 13th, but is on the rise again, and is nearing a three 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 based on it’s economic activity and utility, which should be seen as a bullish price indicator, whereas an uptrend in NVT suggests the opposite.

Daily active addresses (fill, chart below) have declined since January, but remain well above 2017 levels. Active and unique addresses are important to consider when determining the fundamental value of the network based on Metcalfe’s law. Unique ETH addresses continue to grow at a rapid rate and are nearing 45 million. While addresses can never be deleted, this metric indicates a growing use of the Ethereum blockchain. ETH-related job postings on LinkedIn are nearing 500, down from 1,000 postings in July. There are also more than 3,980 Ethereum groups on meetup.com now.

Source: CoinMetrics.io

The Initial Coin Offering (ICO) phenomenon continues to rage when compared to 2017. There have been a total of 899 ICOs thus far in 2018, which have raised a total of US$21.4 billion. The month of May saw the most ICOs, with 141, while September saw the least, with 56. 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.

The ICO-related headlines dominating the news recently have mostly been focused on regulations. Centra Tech, which was promoted by DJ Khaled and Floyd Mayweather is being sued by investors after raising US$32 million last year. The U.S. Securities and Exchange Commission (SEC) recently suspended a Nevada-based ICO for making false claims about SEC regulation and registration. Bermuda approved the first ICO, Uulala, under new regulatory guidelines. Uulala will help facilitate the financial inclusion of the underbanked and unbanked population by providing access to financial tools. The Australia Securities Investments Commission (ASIC) recently axed Global Tech, an ICO which breached Australian securities laws.

Source: CoinSchedule.com

The top dApps over the past week, ranked by volume, continue to be dominated by decentralized exchanges and gambling apps. Bancor has regained a foothold near the top spot in volume after a security breach in July resulted in the loss of ~25,000ETH, more than US$10 million at the time. No user funds were lost in the hack. CryptoKitties had the second highest number of transactions over the past week on subdued ETH volume. The decentralized oracle and prediction market, Augur, has seen very little user growth since launching in July. Peepeth, a dApp version of Twitter, decided to remove their fee for each post this week, after initially requiring users to to pay in an effort to reduce spam.

Source: dappradar.com

Hash rate and difficulty have both declined significantly since early August. Block times, block reward, price, and transaction fees all effect mining profitability, which is currently near all time lows. The network node count is currently ~13,000, half of which are in the U.S., and many of which are run by Infura.

Node services like Infura add a degree of centralization to the network but become increasingly necessary as blockchain size increases. ETH has several sync modes, with fast sync exceeding 108GB and full sync exceeding 667GB.

The ETH consensus algorithm and block rewards are set for major changes in the coming months. EIP 1234 will reduce the block reward to 2 ETH/block and delay a difficulty increase, and will be implemented in the Constantinople hard fork, which was slated for October 30th. Recent problems discovered while testing the changes on the Ropsten testnet 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. A hybrid version of Casper will change the consensus algorithm from solely PoW to PoW and PoS and is set for 2020. The fork will also change the block rewards for PoW and PoS to 0.6 and 0.22ETH/block, respectively. The full implementation of Casper is slated for 2022 which will remove PoW altogether, leaving the PoS block reward at 0.22ETH/block for stakers.

Source: bitinfocharts.com

Turning to developer activity, the main repo for the ETH project on GitHub has had a cumulative 281 commits over the past 90 days and 944 commits over the past year. Most coins use the developer community of GitHub, which was acquired by Microsoft for US$7.5 billion. 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.

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 CoinsBank, Bibox, IDCM, and OKEx. Trading volumes on Binance and Bitfinex are down significantly when compared to recent months.

In Asia, the Yuan (CNY), the Korean Won (KRW), and the Yen (JPY) pairs hold no premium over the USD pairs. Together, all three regions show relatively low interest in their fiat pairs, with ~5% of total traded volume combined. Dai volume has continued to slowly increase over the past few weeks but continues to remain a fraction of total traded volume.

The over the counter (OTC) exchange LocalEthereum facilitated 1,561ETH in transaction volume over the past week. In comparison, LocalBitcoins exchanged 8,717BTC 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 for the term "ethereum" remain down sharply over the course of the year and are sitting at a yearly low. A slow rise in searches for "ethereum" preceded the bull run in Q4 2017, likely signaling a large swath of new market participants at that time. A 2015 study found a strong correlation between the google trends data and bitcoin price. A May 2017 study concluded that when the U.S. Google "bitcoin" searches increase dramatically, bitcoin price drops.

Technical Analysis

After a swift drop on October 11th following the resolution of a bearish technical pattern, the head and shoulders, ETH has remained almost completely flat. With the potential for a large move on the horizon, identifying current bullish or bearish bias is key for future trades. Exponential moving averages (EMAs), Pitchforks, Volume, Ichimoku Cloud and Chart Patterns can be used to determine the entry points and targets. Further background information on the technical analysis discussed below can be found here.

The 50/200EMAs on the daily chart have been bearishly crossed for 120 days, resulting in a steady decline of over 65%. 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$380.

Total long/short open interest is net long and near record highs on Bitfinex, with both long and short positions at elevated levels. A significant price movement in either direction will likely be exaggerated as these positions begin to unwind. There are no active RSI or volume divergences. RSI continues to trend below 50, suggesting momentum continues to lean bearish.

Price also remains bound to a bearish Pitchfork with anchor points in December, March, and May. Based on the rate of change of the trend, price is more likely to continue sideways and return to the median line (yellow) than fall much further. Price will continually test the median line as either support or resistance until price closes above or below the Pitchfork. The volume profile of the visible range also shows the current price zone, or orderblock, has had the most cumulative buy and sell volume since April 2016. A break of the previous local low at US$170 would potentially see a decline to US$65 based on the historic volume profile.

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 doubled settings (20/60/120/30) for more accurate signals are bearish; price is below Cloud, Cloud is bearish, TK cross is bearish, and Lagging Span is below Cloud and in price. A traditional long entry will not trigger until price is above the Cloud.

Further, price has continued to decline since a Kumo breakout on June 7th without a bearish Kijun bounce. Strong resistance at the Tenken shows heavy bearish strength. The TK lines continue to display signs of a small C-clamp which suggest oversold conditions. Similar TK structure can be found in late March and early April. This TK disequilibrium suggests that a long position is favored over a short position, with targets of US$236 and US$342. Strong horizontal resistance sits between US$350-$400 based on historic price action.

The status of the current Cloud metrics on the twelve hour daily time frame with doubled settings (20/60/120/30) for more accurate signals are bearish; price is below Cloud, Cloud is bearish, TK cross is bearish, and Lagging Span is below Cloud and in price. Again, a traditional long entry will not trigger until price is above the Cloud. However, price is approaching a decision point between bullish reversal and bearish continuation, based on the flat and thinning Cloud. A candle close above the Cloud would be the first on this time frame since May.

Lastly, on the ETH/BTC pair, price has largely been confined by several diagonal support and resistance zones since 2015. On August 10th, price dropped quickly after breaking the bottom support zone, which also completed a bearish inverted Adam and Eve double top chart pattern. The pattern yields a 1.618 fib extension of 0.0174BTC, suggesting further downside. The ratio appears to have found support near the last local low of ~0.026BTC. Cloud remains entirely bearish with a potential bullish TK cross soon, towards 0.05BTC.

Conclusion

Network use this year remains low overall, with a marginal increase in the past two weeks. Curiously, despite relatively low network use, pending transactions continue to rise week over week. A significant uptick in network use, through dApps or otherwise, will have a dramatic impact on transactions fees. A delay in the Constantinople hard fork is a short term blow to the network as inflation will remain above 7% until next year. ICO activity continues to be relatively strong despite smaller raises on average compared to last year, and heavy regulatory concerns in many countries.

Technicals remain bearish in the medium term but favor a mean reversion towards US$340 as opposed to fresh lows. The overall trend remains significantly bearish with price below the daily 200EMA and below the daily Cloud. Trend indicators suggest price is nearing a decision point regarding potential bullish reversal. Price will likely remain bound within the downtrending Pitchfork for the next few weeks with lower lows likely requiring additional consolidation.