Ethereum Price Analysis – Technicals suggest the low for the USD pair has been set

Ethereum (ETH) has had several 10%+ swings in price over the past month, but lagged during Bitcoin’s recent bullish rally. The market cap now stands at US$48.37 billion, with exchange-traded volume of US$1.46 billion in the past 24 hours. Market dominance currently sits at just over 15%.

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio has been in decline since surpassing a two year high recently. 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.

The number of transactions per day have continued to increase this month, with cumulative fees exceeding the previous record posted in January. The spike in fees correlates with the release of a new voting system for coin listings on Fcoin, an exchange based in China. The system encourages users to repeatedly deposit tokens to the exchange. Large spikes in fees often discourage dApp activity, due to increasing costs, and discourages users in general.

In response to the network’s heavy load, pending transactions have spiked to ~80,000. Pending transactions spiked dramatically at various times throughout 2017 as well, due to an influx of transactions during ICOs. The network was also crippled during the CryptoKitties dApp craze in December 2017. Unconfirmed transactions can be unstuck by rebroadcasting the transaction with a higher gas price, 10% or more is typically effective.

According to coinschedule.com, there have been 645 Initial Coin Offerings (ICOs) thus far in 2018, which have raised a total of US$16.9 billion. The total for 2017 was a mere US$3.88 billion, with only US$95 million raised in 2016.

ICOs in June raised over US$5 billion, surpassing the previous March high of just over US$4 billion. EOS completed their ICO in June, as did a content distribution platform, The TaTaTu ICO, raising US$575 million in a private sale.

According to dappradar.com, the top decentralized applications (dApps) by transaction over the past week continued to be dominated by decentralized exchanges and gambling apps. FOMO3D, “a lottery where the house advantage goes to the players,” is an incentivized game where users can buy keys to add time to a timer. When the timer ends, the last person who added time wins the entire amount. Key holders are also paid dividends during the duration of the lottery. Proof of Weak Hands 3D allows users to purchase ERC20 tokens that payout ETH anytime someone else buys, sells, or trades the tokens.

Hash rate and difficulty have stabilized throughout June and July, and are both sitting at record highs, while mining profitability is holding near record lows. ETH Proof of Work (PoW) mining will eventually become entirely impossible through the Casper Proof of Stake (PoS) transition. This change also comes with a significant reduction in inflation, to about 500,000 ETH per year or 0.22 ETH per block.

ETH exchange traded volume in the past 24 hours has predominantly been led by Tether (USDT), Bitcoin (BTC), and U.S. Dollar (USD) pairs. The majority of trading occurred on Bitfinex, OKEX, Binance, and Huobi. In Asia, the Korean Won (KRW) premium has vanished. Yuan (CNY) and Yen (JPY) volumes hold a sliver of the total percent traded. Together, all three regions show relatively low interest in their fiat pairs.

The over the counter (OTC) exchange LocalEthereum facilitated 1,157ETH in transaction volume over the past week, according to dappradar. In comparison, LocalBitcoins exchanged 7,861BTC 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

Despite the stronger bullish move in BTC over the past few days, the Pearson Coefficient of ETH and BTC has been 0.85 over the past three months, suggesting the two coins are highly correlated statistically. A lag in bullishness for ETH, with high price correlation, presents an optimal entry for long trades. Trend based indicators like Pitchforks, Ichimoku Cloud, and exponential moving averages (EMAs) can be used to determine the entry points and targets.

ETH has flirted with both a bearish and bullish Pitchfork (PF) throughout the past few months. The bearish PF has anchor points in January, April, and May and a median line (ML) projection of  ~US$225. The bullish PF has anchor points in June 2017, January 2018, and April 2018 and a ML projection of ~US$1,000. Price will continually attempt to return to the ML throughout any given trend. Based on the current position of price, the bearish PF has likely been invalidated, suggesting a price target of US$1,000.

Daily volume has been declining since May and continues to decrease. A convincing spike in volume will likely set a weeks-long trend. Over the past year, most of the trading volume (vertical colored bars below) has occurred near the US$280 price. If price does turn South, buyers will likely return in this zone. Based on volumetric resistance above the current price, the next consolidation zone is around US$660.

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 bullish, and Lagging Span is below Cloud and in price. A traditional long entry will not trigger until price is above the Cloud. Overall, price structure suggests price has bottomed out and will enter the Cloud soon, a bullish reversal sign.

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 in price. A traditional long entry will not trigger until price is above the Cloud.

The position of the TK lines shows a growing C-Clamp, which can be thought of as a bullish divergence, and suggests oversold conditions. If price does not make lower lows, a target of ~US$515 is likely. Flat Kumos at US$596 and US$890 will also act as a magnet for price when price reaches above the Cloud.

A large falling wedge coil has potentially completed, suggesting an imminent bullish reversal. Triangles typically break when ¾ full, which was around July 15th. Although price structure has broken the wedge, volume has not increased as of yet. The pattern holds a measured move and 1.618 fib extension of US$925 and US$1,100 respectively. These targets also correspond with horizontal resistance from a large head and shoulders pattern, as well as horizontal resistance from the previous local high at the top of the wedge.

Lastly, on the ETH/BTC chart, price has formed a large Adam and Eve double top bearish reversal pattern. The 1.618 fib extension would bring the ratio to the previous low of 0.025BTC. Other bearish factors include breaking the yearly pivot and a 50/200EMA death cross. Sellers will likely hasten the decline once the local low of 0.05BTC is breached.

Conclusion

ERC20 tokens continue to dominate the ICO model. Although ETH has a first-mover advantage in regards to blockchain smart contracts, competition from other platforms continues to increase. Scaling continues to be the main concern for the next wave of dApp releases. Based on several random stress tests from different vectors over the past year, the on-chain network shows an inability to adequately scale to handle the need.

Technicals suggest the low for the USD pair has been set with a likely reversal towards US$520 and US$1,000 in the coming weeks and months. The ETH/BTC price looks destined for a lower ratio based on several bearish indicators. The previous bull run in 2017 was fueled by retail speculation of not only ETH but ICOs. As more and more ICOs are moving to private sales for accredited investors only, a new bull run is unlikely to be replicated in the same manner. The next bull run will likely be fueled by Institutional investment or the use of a yet to be released killer dApp. A CME futures contract for ETH, similar to BTC, is likely inevitable and will add to ETH’s legitimacy in the eyes of institutional investors.

Technicals suggest the low for the USD pair has been set with a likely reversal towards US$520 and US$1,000 in the coming weeks and months. The ETH/BTC price looks destined for a lower ratio based on several bearish indicators. The previous bull run in 2017 was fueled by retail speculation of not only ETH but ICOs.