Ethereum (ETH) is a distributed ledger and decentralized computing platform with smart contract capabilities. The crypto asset is currently second on BraveNewCoin market cap table, at US$14.60 billion, with US$2.21 billion traded in the past 24 hours. The Ethereum spot price is down 90% from the all time high set in January 2018. Since the beginning of March, ETH, Bitcoin (BTC), and Ripple (XRP) have been held within a tight range while smaller cap coins like Litecoin (LTC), Binance Coin (BNB), and Stellar (XLM) have seen more volatility.
The ETH project was proposed in late 2013 by Vitalik Buterin, with a crowdsale occurring between July and August 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 at a price of US$0.31 per ETH. The mainnet went live in July 2015 with 72 million premined coins, which currently accounts for 68% of the circulating supply.
Thus far, the 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 next upgrade, Serenity, is currently in development but does not have an expected release date.
There are also ongoing discussions around ETH 2.0 development. The networks second iteration will include a full rewrite and redesign of ETH 1.0. However, both 1.0 and 2.0 will likely exist concurrently for several years before a complete 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 altogether, 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 created.
Earlier this year, Vlad Zamfir, one of the chief architects of Casper’s PoS solution, revealed he was negotiating a research agreement with CasperLabs. Zamfir clarified that his "number one priority is obviously my work on ETH" and leaving was "never on the table."
While the network is still PoW based, a recent proposal called "ProgPoW" (EIP-1057) has gained favor in the community and is likely to be implemented in the next hard fork, later this year. ProgPoW is designed to reduce ASIC mining by making GPU and FPGA mining more efficient. 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.
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 difficulty bomb delay reset difficulty to levels last seen in January 2018 (dashed line, chart below), while the hash rate declined organically from November 2018 to mid-February 2019 (solid line, chart below). Hash rate is currently sitting near multi-month lows. Mining profitability is also near all-time lows. If ETH prices or mining profitability fall significantly, hash rate will likely follow suit.
Average block times are currently 13.42 seconds, which is nearly the fastest in ETH history. The block count per day (line, chart below) has increased to the highest level ever seen. There are 105,412,683 ETH in circulation with inflation per annum currently at 4.76% (fill, chart below), slightly higher than pre-Constantinople levels.
The network currently has 8,700 active network nodes, 41% 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 205GB of storage and a full archival node exceeding 2.42TB of required storage.
The number of transactions per day on the network (line, chart below) recently increased to nearly 610,000, up from a yearly low of 430,000. Going forward, a significant uptick in transactions per day would likely suggest increased dapp activity. The average transaction value per day (fill, chart below) is currently holding just above US$600, which is sharply down from a high of US$20,000 in June 2017. Pending transactions are currently just over 8,000, down from over 30,000 pre-Constantinople. The average transaction fee is currently US$0.10, down from a pre-Constantinople level of above US$0.20.
The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has oscillated between 25 and 45 since November last year. Inflection points in NVT can be leading indicators of a reversal in an asset’s value. 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 NVT holding below 20 would likely signify bullish market conditions, as was the case from April 2017 to May 2018.
Daily active addresses (DAA) have increased to just under 220,000 since the Constantinople fork, up from a yearly low of 192,000 (fill, chart below). DAA remain well above levels seen throughout most of 2017. Unique ETH addresses continue to grow at a rapid rate, and are currently at over 59.78 million (not shown). While addresses can never be deleted, this metric indicates a growing and sustained use of the Ethereum blockchain.
Furthermore, there are over 350 ETH-related job postings in the U.S. on LinkedIn, down from over 1,000 postings in July 2018. There are almost 1.2 million members in 3,650 ETH groups on meetup.com and over 433,000 subscribers on Reddit’s /r/Ethereum.
Globally, ICOs are also increasingly moving away from public sales, which is likely due to fear of regulatory reproach and shifting regulatory landscape. Initial Exchange Offerings (IEO), where crowdsales are facilitated by the exchange, are also increasing in popularity. However, these IEOs have typically had a native blockchain or do not use ETH.
ICO fundraising declined significantly towards the end of 2018 and through the beginning of 2019. However, 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 63 ICOs raising a total of nearly US$474 million. In contrast, the total USD raise in January 2018 was US$2.15 billion.
The top Ethereum based dapps over the past week, ranked by volume, continue to be led by gambling and exchange dapps. IDEX has had the highest number of transactions over the past week at 65,500. In the games category, the My Crypto Heroes RPG has had the highest ETH volume over the past week while CryptoKitties has had the highest number of transactions.
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.
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. Thus far in 2019, ICOs have withdrawn 266,600 ETH from their treasuries. ICOs and Dapps continue to hold 2.77 million ETH, or 2.63% of the circulating ETH supply. The MakerDAO alone also holds 2.06% of the circulating ETH supply.
In November, the Aragon Project took a novel approach by moving 40,000 ETH into a US$1 million loan using the DAI a stablecoin, through the MakerDAO, to protect against market volatility. In December, the Kyber Network, a decentralized token swap platform, saw outflows totaling 50,000 ETH, one of the largest of the year. This month, Tezos withdrew 121,418 ETH, the largest withdrawal of the year thus far. DigixDAO, a project which has attempted to tokenize gold deposits, continues to hold 395,430 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 on 197 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 and Vitalik Buterin. 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 Dia (DAI), Paxos-Standard ([PAX]), Gemini-dollar (GUSD), and TrueUSD (TUSD), but continues to remain a fraction of total traded volume. The majority of trading has occurred on Bibox, IDAX, BitMart, and OKEx.
In Asia, the Korean Won (KRW), Yen (JPY), and Yuan (CNY) pairs have USD prices for ETH at US$136, US$139, and US$154 respectively. Together, all three regions show relatively low interest in their fiat pairs, with about 2.55% of the total traded volume combined.
The over the counter (OTC) exchange LocalEthereum facilitated 2,656ETH in transaction volume over the past week, which is down slightly from earlier in the year. In comparison, LocalBitcoins exchanged over 13,364BTC last week according to coin.dance.
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 remained pinned to the ground for the past few months. 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.
ETH has had decreasing volatility over the past few weeks (chart below), which is typically indicative of a bigger move on the horizon. As price makes a definitive decision, roadmaps for price can be found on high timeframes using exponential moving averages (EMAs), Chart Patterns, volume, and Ichimoku Cloud. Further background information on the technical analysis discussed below can be found here.
Based on key support and resistance zones, ETH is unlikely to again break the US$400 level without a considerable amount of consolidation. If the local low at ~US$80 does not hold, then the next zone of support sits at the previous consolidation level of US$50. This zone also represents psychological support, as does the US$100 level.
However, an Adam and Eve double bottom has completed. The bullish reversal pattern includes a V and U-shaped price structure. The 1.618 fib extension and measured move provide price targets of US$210 and US$250 respectively. If the horizontal resistance is broken on the next attempt, the same targets apply.
On the daily chart, the 50 and 200 day EMAs have been bearishly crossed since June 2018. The previous bullish "Golden Cross" in May 2018 was overshadowed by a bearish reversal pattern, the head and shoulders. Although the EMA cross is currently bearish, the 200 EMA will act as a mean reversion level for price, currently at US$188. This resistance zone also roughly matches the Adam and Eve chart pattern target and a previous increase in volume (horizontal bars).
The long/short open interest on Bitfinex (top panel, chart below) is 83% long, with long positions recently reaching record highs. Shorts have decreased significantly over the past few weeks and are currently sitting at levels last seen in November. A significant price movement downwards will result in an exaggerated move as the long positions will begin to unwind. This is known as a "long squeeze." A further move down will likely find support at the 50 EMA and the high volume zone, between US$130 and US$120. There are currently no active RSI or volume divergences.
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 singled settings (10/30/60/30) for faster signals, are bullish to neutral; price has re-entered the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above Cloud and above price. A traditional long entry triggered on February 17th with an on-volume Kumo breakout, followed by a bearish TK cross, or long exit signal, on March 6th. A long or short entry will trigger when price moves above or below the Cloud, ideally this occurs with significant volume.
Cloud metrics on the daily time frame, with doubled settings (20/60/120/30) for more accurate signals, are neutral; price is in the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is in Cloud and above price.
Again, a traditional long entry will not trigger until price is above the Cloud. Price has not been above the Cloud since January 2018. Price is likely to meander within the Cloud until a breach above or below Cloud resistant or support. For Cloud traders, this is a distinct "no-trade zone" until a decision on the trend is reached.
Lastly, on the ETH/BTC pair, trend indicators remain mixed. Cloud metrics using doubled settings are bullish to neutral with a long or short entry warranted after price breaks above or below the Cloud. The 50 and 200 day EMAs are currently bearishly crossed with price tapping the 200 EMA twice this year and currently sitting just above the 50EMA. A bullish 50/200 EMA cross should act as a strong buy signal for many traders. ETH/BTC open interest (top panel, chart below) on Bitfinex is almost exclusively dominated by long positions. There are currently no active RSI or volume divergences. In the near term, any bullish momentum is unlikely to exceed 0.055 BTC and any bearish momentum is unlikely to exceed 0.020 BTC.
Almost a month after the Constantinople Hard Fork, ETH fundamentals show transactions per day and daily active addresses have begun to increase, with unique ETH addresses also increasing at a rapid pace. Inflation has decreased with lower block times, a downtrend in pending transactions, and hash rate near yearly lows. The recent reduction in ETH issuance will not only affect the annual inflation but also mining profitability. If ETH prices remain low, many miners will no longer be able to mine ETH at a profit and ETH hashrate will likely stagnate or continue to fall. This will consolidate the remaining hashing power into fewer and fewer hands and may provide additional impetus for the ProgPoW EIP, which already looks to be a certainty by the end of the year. Although ETH 2.0 is still in the early stages of development, the changes are actively being discussed, debated, and coded.
ICO inflows and outflows remain down significantly compared 2018 with no signs of increasing. Any ICO holding-related selling pressure is likely to continue until the next wave of potential Security Token Offerings hits the market. Globally, shifting regulatory clarity is pushing most crypto asset crowdsales towards private sales and accredited investors. As ICO ETH holdings have declined, MakerDAO ETH holdings have increased substantially, although this may change with rising stability fees and the introduction of a multi-collateral DAI coming later this year.
Technicals are currently bullish to neutral for both the ETH/USD and ETH/BTC pair. Although trend indicators show no immediate signs of bullish or bearish trend strength, the next large price movement will likely dictate the beginning of a new trend. ETH/USD holds a support target of US$100 and a resistance target of US$200. ETH/BTC holds a support target of 0.02 BTC resistant target of 0.05 BTC.