Ethereum Price Analysis – Price action overshadows regulatory concern

Ethereum (ETH) has had a strong rebound in the beginning of Q2, now up over 90% since April 7th. The market cap now stands at US$69.55 billion, with exchange-traded volume of US$2.14 billion in the past 24 hours.

Chatter has continued to increase about whether or not cryptocurrencies, specifically Ethereum, should be considered a security under U.S. law. In an interview with The New York Times, ex-CFTC chairman Gary Gensler said there is a “strong case” that ETH is a noncompliant security, which usually comes with heavy financial penalties and jail time.

In response, venture capital firms, led by Andreessen Horowitz and Union Square Ventures, have asked the SEC for safe harbor from securities law, suggesting that the law does not apply to ETH due to its decentralized nature. Current SEC chair Jay Clayton has already said, "I believe that every ICO I have seen is a security,” and has implied that ETH is not a security, although ETH did have a token sale of its own in 2014.

There has also been heated discussion this week over EIP999, a patch to restore multisig access to the self-destructed Parity wallet, a situation that resulted in the loss of 513,000 ETH. A live poll on EtherChain, which allows weighted voting through signed messages based on funds held by the wallet, currently shows a 55% ‘no’ vote.

The first Decentralized Autonomous Organization (DAO) was hacked in 2016, resulting in a loss of 3.6 million ETH. The loss was reversed with a fork, despite immutability concerns by some. Vitalik has attempted to stay neutral in regards to restoring the lost Parity funds and EIP999, but said in a tweet that he believes “the community’s feeling on this issue is already clear.”

Early stages of a recurring subscription service on the ETH blockchain have been proposed with ERC948. Citing a large increase in similar services since 2008, ERC948 would use an existing business model and bring it to the blockchain.

On the network side, transactions per day have begun to increase after sliding to less than half of the peak in December. However, the value of those transactions sent per day remains low, compared to the past year. The network value to estimated on-chain daily transactions (NVT) ratio remains high when compared to the levels seen over the past year.

Hash rate and difficulty increases have begun to slow slightly in April. This is likely due to the dramatic decrease in mining profitability recently. In October 2017, the Metropolis hard fork protocol changes to address the inflationary distribution curve decreased the block reward to 3 ETH from 5 ETH, with the difficulty lowered accordingly to maintain near the same mining profitability. ETH PoW mining will eventually become entirely unprofitable and impossible through the Casper PoS transition.

According to coinschedule.com, ICO raises have slowed significantly in April. Nonetheless, just four months into 2018 total funds raised has surpassed all of 2017 by over US$2.29 billion, largely thanks to the Telegram ICO. According to tokenmarket.net, there are 68 more ICOs scheduled for 2018 and 83 more yet to announce their ICO dates. Cambridge Analytica, of Facebook scandal fame, had also been planning an ICO.

According to dappradar.com, the top decentralized applications (dApps) by volume over the past week have been two decentralized exchanges, IDEX 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.

ETH exchange traded volume in the past 24 hours was led predominantly by the Bitcoin (BTC), Tether (USDT), and U.S. Dollar (USD) pairs. The majority of trading occurring on Bitfinex, OKEX, Huobi, GDAX, and Binance. In Asia, the KRW trading pair holds a negligible premium, JPY volume shadowed by other pairs, and CNY volume absent.

The Over The Counter (OTC) exchange LocalEthereum averaged less than ~165ETH per day in transaction volume over the past week. In comparison, LocalBitcoins averaged 7,947BTC worldwide in the past week. Traditional OTC desks, which often do not report volume, require a minimum order of between US$100,000 and US$250,000, whereas these peer-to-peer marketplaces have no minimum order size. Circle’s OTC desk recently increased their minimum ticket size to US$500,000.

Technical Analysis

ETH has risen quickly from the previous resistance turned support level, suggesting strong buying coming in from that zone onward. The status of this trend on any timeframe can be determined using Ichimoku Cloud, Exponential Moving Averages, Support Zones, and Chart Patterns. Further background information on the technical analysis discussed below can be found here.

On the daily chart, the 50/200 Exponential Moving Averages (EMAs) are currently crossed bearishly. However, a bullish 50/200 EMA cross will likely occur within the next week and should be seen as strong evidence for bullish continuation. In general, EMA crosses can heavily lag market movements, making the entries based on the crosses alone suboptimal. Based on Fibonacci extensions, a target of US$1,700-2,100 is not unreasonable.

The Ichimoku Cloud uses four metrics 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 mixed; price is in the Cloud, Cloud is bearish, the TK cross is bullish, and the Lagging Span is below Cloud but above price. A traditional Cloud long entry would not occur until price is above Cloud with volume. This is known as a Kumo Breakout. Before this breakout does occur, price will likely meander in the Cloud to regain momentum.

The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals, is also entirely bearish; Price is below Cloud, Cloud is bearish, the TK cross is bearish, and the Lagging Span is below Cloud but above price. Again, a traditional Cloud long entry would not occur until price is above Cloud with volume. The flat Kumo at US$888 represents a 50% retracement from ATH to April low and should act as a magnet for price.

On the four hour chart, Cloud is entirely bullish, although a bearish rising wedge has formed. Price has clearly broken up from the normally bearish reversal pattern, but a bearish divergence on RSI remains, suggesting waning bullish momentum. The best location for long re-entry is always the Kijun, currently at US$605.

Lastly, on the daily ETH/BTC chart, the ratio has returned to the pre-breakdown level of the bearish inverted head and shoulders. Cloud signals are bearish but attempting to flip bullish and the 50/200 EMA will likely be crossing bullishly in the next week or so. If bullish momentum continues, price will likely move through the Kumo twist, an area where Cloud resistance is negligible.

Conclusion

Security regulation for ETH is unlikely but would potentially result in many exchanges being unable to list ETH or ETH pairs to U.S. customers as most exchanges are not currently licensed for selling securities. The SEC or other regulatory bodies around the globe have yet to crack down on any exchange for listing unlicensed securities in the form of ICOs. Network traffic has increased since the downtrend beginning in December, although ICO launches and raises have decreased.

Technicals continue to suggest strong reversal of bear trend or pullback from December’s all time high. The litmus tests for a resumption of the bull trend would be price above the daily Cloud, price above the 200EMA, and a bullish 50/200EMA cross. Targets beyond US$1,500 are likely should price break above the record high. In the near term, bids around US$600 should capture any retracement before reaching the US$888 target. Although Asian influence may be minimal on aggregate, the number 8 holds strong cultural significance in China.