Ethereum Price Analysis – Whales moving ETH to exchanges

Ethereum (ETH) has dropped 25% this week and is currently at a 12 month low after a long period of low volatility. Overall, the crypto asset remains down 84% from the record high set in January. The market cap stands at US$22.95 billion, with US$2.01 billion traded in the past 24 hours.

Discussions regarding the future of ETH continue to be dominated by concerns around scaling, and more recently, inflation. The ETH inflation rate is currently ~7.3% and ETH miners are paid $2.5 billion a year despite a reduction in block reward after the Metropolis fork in October 2017. Inflation is set to be reduced further in a stepwise fashion over the course of the next few years.

Changes in issuance and the block reward are closely tied with a slated move from Proof of Work (PoW) to Proof of Stake (PoS) through the addition of Casper, which won’t likely be implemented until 2019-2020. A recent community poll, with votes weighted by wallet balance, unanimously supported decreasing the block reward to 1ETH per block until Casper is implemented (EIP 858). ETH developers subsequently decided to reduce the block reward to 2 ETH/block and delayed a difficulty increase (EIP 1234).

EIP 1234 will be implemented in the Constantinople hard fork on October 30th. A hybrid version of Casper is set for 2020 which will bring 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: Eric Conner

Turning to network fundamentals, hash rate and difficulty have both been in decline since early August. Block times, block reward, price, and transaction fees all effect mining profitability, which is currently sitting near all time lows. The network node count is currently 15,316, half of which reside in the U.S., and many of which are run by Infura.

The number of transactions per day continues to range between 600,000-700,000. Pending transactions are currently holding around 70,000. Spikes in fees and pending transactions have been related to “trade mining” activity, a new fee model becoming popular on Asian exchanges. The model reimburses 100% of the platforms transaction fees via the platforms native token. This has encouraged users to create fake transactions and wash trading in order to collect fees and earn more tokens.

There have also been significant movement of large quantities of ETH to exchanges, from both ICO holdings and from the ETH ICO itself. Generally, coins are not removed from cold storage and sent to an exchange for any other reason than to sell.

According to dappcapitulation.com, most dApps and large ICOs continue to hold vast quantities of ETH despite wild fluctuations in ETH price. The most notable exception being EOS, which has sold 100% of it’s ETH treasury in stages, the last of which sold on July 2nd.

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) has been in decline since June 13th, after surpassing a two 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. Daily active addresses (fill, chart below) have declined since January, but remain well above 2017 levels. ETH-related job postings on LinkedIn currently exceed 500, down from 1,000 postings in July.

According to coinschedule.com, there have been 770 Initial Coin Offerings (ICOs) thus far in 2018, which have raised a total of US$18.67 billion. The total for 2017 was a mere US$3.88 billion, with only US$95 million raised in 2016. ICO sales have plummeted since EOS and TaTaTu completed their ICOs in June, having raised a combined US$5.575 billion.

Despite decreasing ICO sales throughout the year, ETH Co-founder, Gavin Wood still believes that ICOs will continue to evolve. Crowdfunding website IndieGoGo recently announced a push towards selling security tokens (STO), including an offering for the St. Regis Aspen Resort in Colorado. Municipal bond ICOs, or initial community offerings, are also in the early stages of emerging as a new funding vehicle.

According to dappradar.com, the top dApps by volume over the past week continue to be dominated by decentralized exchanges and gambling apps. IDEX has had both the most users in the past 24 hours as well as the highest ETH volume over the past week. Both FOMO3D and PoWH3D, variants on ponzi and pyramid schemes, have gone out of favor after a winner took off with 22,000ETH.

In the markets, 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 OKEX, Binance, Huobi, and Bitfinex. Further fiat gateways for ETH continue to open for British and EU residents, with Coinbase recently announcing ETH/GBP pairs and Wirex announcing an ETH wallet.

Aditionaly, the Chicago Board of Exchange (CBoE) recently announced plans for a regulated ETH futures product later this year. The Chicago Mercantile Exchange (CME) has denied any plans to add more cryptocurrency futures products. Fundstrat’s Tom Lee believes that ETH futures are not bullish for the price of ETH.

In Asia, the Korean Won (KRW) and Yuan (CNY) pairs hold a slight premium while the Yen (JPY) pair is in line with the BNC Ethereum Liquid Index average price. Together, all three regions show relatively low interest in their fiat pairs, with ~5% of total traded volume combined.

The over the counter (OTC) exchange LocalEthereum facilitated 1,784ETH in transaction volume over the past week, according to dappradar. In comparison, LocalBitcoins exchanged 7,261BTC 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

ETH continues to experience extended downside pressure. Chart patterns, exponential moving averages (EMAs), divergences, Pitchforks, and Ichimoku Cloud can be used to determine the entry points and targets during this period, as well as the strength or weakness within the macro trend. Further background information on the technical analysis discussed below can be found here.

Since June of last year, the ETH chart has continually moved extremely technically, inspite of any fundamentals. The fourth clear and distinct chart pattern during this time, the bearish pennant, carries a 1.618 fib extension of ~US$111. This level matches a selloff wick that occurred in June 2017.

The 50/200EMAs on the daily chart have been bearishly crossed for 92 days, resulting in a steady decline of 66%. The bearish Death Cross and bullish Golden Cross are significant events for many traders because these crosses 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.

Long/short open interest on Bitfinex is net long but both longs and shorts are near all time high levels. A significant price movement in either direction will likely be exaggerated as these positions begin to unwind. The daily chart is also showing a significant bullish RSI divergence as price has made a lower low without making a lower low in momentum.

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). Price will continually test the median line as either support or resistance until price closes above or below the Pitchfork.

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 bearish, and Lagging Span is below Cloud and in price. A traditional long entry will not trigger until price is above the Cloud. Price has now dropped over 54% since the bearish TK cross below the Cloud on July 30th, which signaled a high likelihood of bearish continuation.

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. Again, a traditional long entry will not trigger until price is above the Cloud. 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.

On the six hour chart, there was an opportunity for a reversal above US$300, known as an Edge to Edge trade. This is where price closes in the Cloud and reaches for the other side of the Cloud. These trades are stopped out when price breaches the Cloud and Kijun, as was the case. A bearish Kumo breakout here on high volume showed a strong likelihood of continuation.

On the ETH/BTC pair, price has largely been confined by several diagonal support and resistance zones. Price has broken the edge of the bottom support zone, completing a bearish inverted Adam and Eve double top chart pattern. The pattern yields a 1.618 fib extension of 0.0174 which matches the Volume Profile’s support zone. Strong support is also likely near the last local low of ~0.026BTC.

##Conclusion

The monetary policy of ETH continues to be in flux, thanks in large part to the PoW to PoS transition and unexpected increase in ETH inflation this year. A course-correction with a decrease in inflation on October 30th is certainly bullish for price, but it points to a bigger problem of a lack of long term understanding of Eth’s ideal issuance model. Continued changes or delays in ETH development only make other projects with a defined roadmap and monetary policy look more attractive. However,, companies continue to build on top of ETH, preparing for the next spike in adoption. The 2.0 version of ICOs are also in the nascent stages with STOs and bond offerings.

Technicals suggest no immediate bullish relief in sight, especially as ICOs and large holders continue to send large swaths of ETH to exchanges. The best case scenario to suggest an end of the bearish sentiment, as always, would be a high volume, immediate, intraday spike or cascade much lower. This is known as capitulation. To prepare for this scenario, traders often place bids at psychological levels or round numbers in the hopes of catching that knife.