Ethereum Price Analysis – Bullish bias continues

Ethereum (ETH) now has a US$29 billion market capitalization, second only to Bitcoin’s US$102 billion. Currently trading ~US$500,000 a day across all exchanges, behind both Bitcoin and Bitcoin Cash.

The effect of the Byzantium hard fork continues to take shape on the network. Miners were rewarded with a difficulty adjustment but also lost some of the previous block reward, from 5ETH to 3ETH. These adjustments were done in part to combat Ethereum’s inflationary curve, as well as prepare for a network which uses pure PoS in the future.

The sharp decrease in difficulty, which hash rate unchanged or slightly higher, means that block times have also decreased substantially, down to around 14 seconds. A decreased confirmation time per block allows for increased total transactions per day, which broke an ATH of 570,000 transactions on October 20th. The network is currently better positioned to handle the volume of large ICOs like Filecoin and Tezos.

Thanks to quicker block times, block size has decreased significantly and fees have decreased substantially, now about US$0.15 per transaction on average. Unlike Bitcoin, Ethereum does not have a maximum block size, but instead a dynamic transaction fee, called Gas, which increases according to network demand.

Casper, which represents a shift from PoW to PoS, may be completed and introduced in the next hard fork, Constantinople. Two versions are currently being developed, Buterin’s Friendly Finality Gadget (FFG) and Zamfir’sCorrect By Construction (CBC). FFG is a “partial consensus mechanism inspired by a combination of existing PoS algorithm research and Byzantine fault tolerance consensus theory”. CBC develops an “ideal adversary” which “decide on a value given a view only when they find that an estimate with that value is safe against the ideal adversary for the given view in Casper without side effects”.

Put simply, FFG forces the measured switch to PoS whereas CBC secures the PoS system through consensus. There will likely be a hybrid version of both in the released version of Casper.

OKEx announced this week that they will be releasing an ETH futures product, similar to their popular BTC futures product. Their LTC futures product has existed for many months but at times has been plagued with liquidity issues and frequent margin calls on both sides of the book with 20x leverage. BitMex also offers an ETH futures product, but unfortunately has much of the same problem.

ETH trading volume has been led by South Korean Won (KRW), Bitcoin (BTC), and US Dollar (USD) pairs on Bithumb, Poloniex, and Bitfinex respectively.

Technical Analysis

Price continues to be dominated by a large ascending triangle chart pattern, which holds a bullish bias, with a 1.618 fib extension and measured move of US$650 and US$790 respectively. The pattern is currently in it’s 160th day of consolidation.

The safest entry would be above US$420, or new ATH. The most aggressive entry is along the diagonal support. A volume spike should confirm the pattern break as well. A very similar ascending triangle consolidation pattern occurred on bitcoin in the beginning of the bull run from late 2015 into early 2016. This pattern took over 200 days to resolve and nearly reached the 2.618 fib extension before pulling back.

Meanwhile, the ETH/BTC pair continues to drop, as BTC is rising and ETH is consolidating. The first bearish signal was a clean break of the daily 200EMA on October 9th. The death cross a few days later solidified the bearish momentum, the last of which occurred almost a year ago and kicked off several days of bearish continuation.

Conclusion

Fundamentally, Ethereum continues to make adjustments to the protocol for the final version a few years down the road. Markets worldwide are warming to ETH derivatives and ETH related products which will continue to provide exposure to new money.  Technicals suggest continued consolidation, likely for another month-and-a-half, with a projected target of ~US$800.