Ethereum Price Analysis - High interest and demand

Ethereum (ETH) has essentially moved in lock-step with Bitcoin over the past week. Having retraced over 50%, the cryptocurrency is now recovering. The market cap stands at US$79.2 billion, with US$3.18 billion in trading volume over the last 24 hours.

Research and development of Ethereum's move Proof of Work (PoW) to Proof of Stake (PoS) continues, although it’s currently in the first of many stages. The PoS consensus mechanism, Casper, will consist of two projects that are currently being hybridized; Buterin’s Friendly Finality Gadget (FFG) and Zamfir’s Correct By Construction (CBC).

A nascent form of Casper has been running on the testnet for the past few weeks but has run into several problems with node connections. These issues suggest that Casper may not be ready for the next protocol improvement harfork, Constantinople. However, Casper’s ability to finalize blocks is working as intended. Also in development are Plasma, which addresses smart contract scalability, and Sharding, a type of database partitioning designed to facilitate the growing blockchain size.

The Ethereum network hash rate has continued to march North, despite a decreased block reward from 5ETH to 3ETH. Difficulty is nearing levels not seen since October, when the Byzantine hard fork effecting the block reward change was released. These changes to the are designed to discourage PoW over time, with PoS taking over the network.

Ethereum Price Analysis 9 Feb 2018 1While Buterin and his team of developers work on the Ethereum platform, developers that can use it are in high demand. There are currently over 1000 listings for ETH dev positions on the networking site LinkedIn. A study from consensys found that ETH has over 30 times more devs than other blockchain communities.

A leading development focus has been identity management and verification systems for anything from Know Your Customer (KYC) and Anti Money Laundering (AML). Although there have been several projects to take up the task, including Vinny Lingham’s Civic which quickly raised $30 million in an Initial Coin Offering (ICO), or projects like Sphere which launches mid-2018, a systematic standard for how the problem should be approached has yet to be adopted.

Developer Fabian Vogelsteller aims to change that with ERC725 which targets a unique identity for humans, groups, objects and machines. Vogelsteller was instrumental in developing ERC20, which brought about the explosion of the ICO market, and believes that a shell standard for identity will be equally successful.

The National Aeronautics and Space Administration of the United States, whose research has lead to discoveries such as memory foam, water filters, and scratch-resistant lenses, has also thrown it’s hat in the blockchain ring.

Jin Wei, assistant professor in the department of electrical and computer engineering at the University of Akron, recently outlined her vision for developing a resilient networking and computing paradigm (RNCP) using the Ethereum blockchain. The RNCP consists of two essential parts, a secure and decentralized computing infrastructure and a data-driven cognitive networking management architecture.

According to Wei, “The RNCP would support decentralized processing among NASA space network nodes in a secure fashion, resulting in a more responsive, resilient scalable network that can integrate current and future networks in a consistent manner. It is expected that the potential is high to contribute to the next generation space networks, and also allow tech transition of these algorithms for commercial systems.”

Decentralized applications, or dapps, also continue to be released and used on the ETH network. The most popular dapps involve collectibles, like cryptokitties, or gameplay and competition, like etherbots, which give users a dopamine rush that some are dubbing ‘crypto crack.’

Many casino and gambling dapps have also been developed. One criticism of the original bitcoin gambling app, Satoshi Dice, were it’s transactions clogging the network. This is less of a problem on Ethereum due to its robust ability to handle these types of microtransactions.

Although scaling and transaction fee problems can plague any blockchain, it’s currently not an issue for ETH, although these pressures ebb and flow with the popularity of ICOs or dapps. This has a compounding effect on the network as a whole, leading to exchanges temporarily halting withdrawals on occasion.

Ethereum Price Analysis 9 Feb 2018 2Exchange traded volume has been led by the Bitcoin (BTC), U.S. Dollar (USD), and U.S. Dollar Tether (USDT) markets on Okex, Bitfinex, and Binance respectively.

Bitfinex recently announced the introduction of more ETH trading pairs, further encouraging the use of ETH trading. They are also in the processing of releasing ETHfinex, a platform for trading and discussing ERC20 compatible tokens and ethereum-based crowd sales.

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Technical Analysis

With any large pullback, it’s important to assess the status of the trend. This can be done with the Ichimoku Cloud, moving averages, chart patterns, and Pitchforks.

The Ichimoku Cloud on the daily chart, using singled settings (10/30/60/30) for a faster signal, shows early bearish momentum. Metrics including Cloud, price position relative to the Cloud, and the TK cross are bearish. The distance from Kijun suggests that there will be a return to mean in near term.

Price is between the yearly pivots (yellow), a range that will continue until the horizontal support/resistance are breached. Price did break the US$1063 pivot several times before reaching US$536. At the same time, price broke the fractal pivot horizontal stop (green), a long exit signal. A bearish TK cross also signaled a long exit.

The 200EMA also acted as support near US$600. The trend remains bullish so long as the price is above this moving average.

Ethereum Price Analysis 9 Feb 2018 5

The Cloud metrics on the daily chart, using doubled settings (20/60/120/30) for a more accurate signal, are also essentially bearish. The bearish TK cross was a late signal for the long exit, exemplifying the need to use a secondary stop loss system like fractal stops.

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The Cloud on the four hour chart is again decidedly bearish with a bullish reversal chart pattern, the inverted head and shoulders. A break of the 50EMA, a neckline for the inverted head and shoulders, or a kumo breakout would signal a long entry. A 50/200EMA cross would be additional confluence for the long entry.

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The Cloud on the hourly chart shows the earliest signs of bullish reversal, with the Cloud twisting bullish (yellow, the price above the cloud, and a bullish TK cross. These signals suggest a low timeframe long entry. The 200EMA can be used as a rough neckline for the inverted head and shoulders, with the US$1063 pivot as a rough target or zone of resistance.

Ethereum Price Analysis 9 Feb 2018 8A Pitchfork with anchor points in July, September, and December shows price bouncing off the 1.618 extension. Price has consistently rejected the lower quartile, marking this zone as support. The Pitchfork suggests a continued bull trend, with the lower quartile being a strong buy zone. Price will consistently attempt to return to Pitchfork mean (red).

Ethereum Price Analysis 9 Feb 2018 9Lastly, the ETH/BTC ratio on the daily chart, using the singled Cloud, shows signs of weakening bullish continuation with a bearish TK cross imminent. The fractal stop has also been breached several times suggesting a long exit.

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Further background information on the technical analysis discussed above can be found here.

Conclusion

Development of the ETH network and interacting applications continues to grow without limit, due to high interest and demand.

Technicals suggest a near term bullish reversal to US$1063, with higher timeframe signals beginning to lean bearish. Failure to complete the inverted head and shoulders on low timeframes will be the first sign of bearish continuation. On balance, based on the 200EMA and Pitchfork, price remains in a strong buy zone.