Sushiswap Price Analysis – Growing DEX volume and bullish token technicals

Sushiswap is a fork of the Decentralized Exchange (DEX) Uniswap, created by the anonymous Chef Nomi. Both are built on Ethereum and enable the trading of ERC-20 tokens in a non-custodial manner.

Sushiswap released a governance token (SUSHI) via airdrop on August 28th, 2020. Sushi currently has a market cap of US$2.49 billion, placing it 23rd on BraveNewCoin’s market cap table, with US$500 million in trading volume over the past 24 hours.

Source: www.sushiswap.fi

DEX trading volumes have increased rapidly in recent months. Uniswap (pink) has held a majority of that volume, with over US$26 billion in January alone. Despite increasing competition, Sushiswap’s volume (purple) has continued to increase month-over-month. Sushiswap has also experienced rapidly growing volume, with over US$12 billion in January alone.

Sushiswap trades function through an automated market maker (AMM) which uses an _x*y=k _formula, where x represents the amount of one token in a liquidity pool, y is the amount of another asset, and k is a fixed constant. The value of both assets within Sushiswap AMMs is 50:50. Effectively, as one token within the AMM pair appreciates or depreciates, the other token will be bought or sold to make up the difference.

Sushi liquidity providers (SLPs) provide their capital for a specific liquidity pool. SLPs replace the traditional order books of centralized exchanges. In exchange, SLPs are rewarded 0.25% in trading fees generated by trades within the pool. SUSHI holders are also rewarded 0.05% of trading fees. Additional incentives, such as yield farming and liquidity mining, also encourage SLPs to provide liquidity. Many individual tokens have also provided unique SLP incentives to incentivize liquidity.

AMMs also introduce impermanent loss (IL), which occurs when the price of a deposited asset in a liquidity pool changes compared to when the asset was first deposited, relative to the other asset in the pair. The greater the change, the higher the potential for IL. This type of mechanism is said to be “impermanent” because as long as the relative prices of the tokens in the AMM return to when they were first deposited, the loss disappears and trading fees remain as a reward.

For example, two assets that are highly correlated within a trading pair, such as wBTC/renBTC, will have very little IL over a long period of time, compared to when initially deposited. Pairs such as ETH/USDC or SUSHI/ETH are highly uncorrelated and will experience significant IL over a long period of time, compared to when initially deposited. Overall, because of IL, participating in an AMM runs the risk of under-performing a basic buy-and-hold strategy.

Starting in mid-September 2020, a SUSHI token liquidity mining program began in 13 pools, with 1,000 SUSHI minted over the course of 100,000 ETH blocks. Thereafter, 100 SUSHI is being minted, with a hard cap on tokens at 250 million SUSHI, expected to be reached in November 2023. A multi-sig controlled dev treasury will absorb 10% of all SUSHI emissions.

SUSHI currently has a 192 million free float token supply. Over US$2.5 billion is locked within the SUSHI protocol in a mixture of assets, including BTC, ETH, and dai. The total value locked into contracts on Sushiswap is 6th, behind the MakerDAO, the AAVE protocol, Compound Finance, Uniswap, and Curve Finance.

On-chain SUSHI token stats reveal a steady increase in both transactions per day and average transaction sizes over the past few weeks. Transactions per day hit an all-time high of 41,000 during the initial token distribution in September 2020. Since November, transactions per day increased 6x to over 6,000. Average transaction values have also increased significantly since November, along with the token price.

Source: CoinMetrics

The weekly Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (red line) has ranged from 1.5 to 15 over the past few months. SUSHI token staking likely lowers NVT significantly, beyond normal transaction activity. A clear downtrend in NVT suggests a coin is undervalued based on its economic activity and utility, which should be seen as a bullish price indicator. Daily active addresses (DAAs) hit just over 14,000 during the initial token distribution in September 2020. There are currently over 2,000 DAAs, which have continued to increase over the past few months.

On the development side, the SUSHI GitHub account has 28 repos with 12 active developers. Most coins use the developer community of Github 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.

Source: GitHub – sushiswap/sushiswap

Technical Analysis

Roadmaps for future market movements can be found on high timeframes using Exponential Moving Averages, Volume Profile Visible Range, Pivot Points, Ichimoku Cloud, and divergences. Further background information on the technical analysis discussed below can be found here.

SUSHI has a limited trading history and needs to be analyzed on lower timeframes, as opposed to the daily chart. On the four-hour timeframe, the 50-period Exponential Moving Average (EMA) and 200-period EMA crossed bullish on November 15th, which has resulted in a 978% increase. Upside resistance while in price discovery, based on yearly pivots, sits at US$17 and US$33.

The current spot price is nearly 2x the 200-period EMA, and has not touched the 200-period EMA since January 11th. If the horizontal support fails, the next significant support sits at US$10 based on the 50-period EMA. Additionally, there are no current bearish divergences on volume or RSI to suggest weakening bullish momentum.

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 four-hour timeframe, with doubled settings (20/60/120/30) for more accurate signals, are bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above the current spot price. The trend will remain bullish so long as the spot price remains above the Cloud, currently at US$7.75. Kijun support also sits at US$10.36.

Daily trend metrics for SUSHI/BTC are also bullish as the spot price sits above both the 200-period EMA and Cloud, on the four-hour timeframe. Upside resistance, based on monthly pivots, sits at 40,000 sats and 48,000 sats. Kijun and VPVR support sits between 31,000 sats and 26,000 sats, with additional monthly pivot support at 24,000 sats. The most significant VPVR support sits from 600 sats to 1,200 sats. Additionally, there are no current bearish divergences on volume or RSI to suggest weakening bullish momentum.

Conclusion

Non-custodial decentralized exchanges (DEX) have quickly risen to prominence since mid-2020, along with the rise of various other DeFi mechanisms. Sushiswap, and subsequent token, SUSHI, were both closely mirrored from Uniswap and UNI. Volume, total value locked, and on-chain token stats suggest a significant continued uptick in Sushiswap DEX use and SUSHI token use over the past few months.

Technicals for both the SUSHI/USD and SUSHI/BTC pairs show a bullish trend with prices over the 33-day EMA and four-hour Cloud. Upside resistance sits at US$17 and US$33 and 40,000 sats and 48,000 sats for the SUSHI/USD and SUSHI/BTC pairs, respectively. Both pairs show strong support, based on the daily Cloud, at US$10.36 and 31,000 sats, respectively.