Ethereum Price Analysis – Pushing lows

Ethereum (ETH) is down 15% since July 15th, when a top U.S. SEC official said that he believed ETH was not a security. The cryptographic asset is currently down 65% from the record high in January. The market cap stands at US$37.96 billion, with US$1.14 billion traded in the past 24 hours.

The number of transactions per day has continued to increase this month. The average transaction fee, which spiked throughout July, has returned to levels seen in June. However, Gas prices have begun to increase again, suggesting another increase in average transaction volume is on the horizon.

Gas is a unit that measures the amount of computational effort to execute operations. Every operation that can be performed by a transaction or contract on the Ethereum platform costs a certain amount of gas.

Pending transactions have spiked to more than 50,000 twice this week as “trade mining” activity has increased. Trade mining is a new, burgeoning fee model on select Chinese exchanges. The model reimburses 100% of the platforms transaction fees via the platform’s native token. This has encouraged users to create fake transactions in order to collect fees and therefore earn more tokens.

As concerns around increasing transaction fees come to the forefront again, future scaling solutions remain a pressing issue. On-chain scaling solutions like Proof of Stake (PoS) and Sharding will allow for more transactions to be validated at once. Off-chain scaling solutions include the Raiden Network, which uses bidirectional channels similar to Bitcoin’s Lightning Network, and Plasma, which uses a series of smart contracts to create hierarchical trees of sidechains.

The transaction tumbler Mobius, which enables private transactions with ring signatures and stealth addresses similar to those seen on Monero, has gained increasing public attention as users become more concerned with privacy as well. Zero-Knowledge Succinct Non-Interactive Argument of Knowledge (ZK-SNARKs), a feature is used by Zcash to enable private transactions, was added to ETH in October. Vitalik Buterin has also commented on his increasing concerns around privacy and mass surveillance while using cryptocurrency.

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio has been in decline since surpassing a two year high recently. On-chain activity increased dramatically throughout 2017, during ICO mania. Inflection points in NVT can be leading indicators for a reversal of an asset’s value. A clear uptrend in NVT suggests a coin is overvalued based on its utility and should be seen as a bearish price indicator.

Hash rate and difficulty posted record highs in August, while mining profitability is holding near record lows. ETH Proof of Work (PoW) mining will eventually become entirely impossible through the Casper Proof of Stake (PoS) transition. This change also comes with a significant reduction in inflation, to about 500,000 ETH per year or 0.22 ETH per block. Casper is unlikely to be implemented until 2019-2020. A community poll, with votes weighted by wallet balance, unanimously supported decreasing issuance to 1ETH per block until Casper is implemented (EIP 858).

The ETH project on GitHub has had a cumulative 874 commits over the past year. 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.” Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity.

According to coinschedule.com, there have been 645 Initial Coin Offerings (ICOs) thus far in 2018, which have raised a total of US$17.7 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.

According to dappradar.com, the top decentralized applications (dApps) by users 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. The gambling apps FOMO3D and Proof of Weak Hands (PoWH) 3D, both of which are openly designed to operate as a Ponzi or pyramid scheme, remain extremely popular.

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. In Asia, the Korean Won (KRW) and Yuan (CNY) pairs hold a slight premium while the Yen (JPY) pair is in line with the average spot price. Together, all three regions show relatively low interest in their fiat pairs.

Coinbase recently announced they have increased daily limits on instant buys or sells to US$25,000. Increased liquidity will likely eventually increase retail volume as well. Coinbase enabled credit card purchases for most customers last year, until Chase, Bank of America, Citi, and Capital One began blocking those purchases in February.

The over the counter (OTC) exchange LocalEthereum facilitated 1,743ETH in transaction volume over the past week, according to dappradar. In comparison, LocalBitcoins exchanged 7,000BTC 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

Trading volumes throughout the crypto markets have declined sharply over the year, but the decline in ETH volume has been amongst the most dramatic. With the volume decline, price has also been choppy and harder to predict on intraday time frames.  As volume begins to increase, recognizing the formation of a trend will prove to be profitable. Chart patterns, exponential moving averages (EMAs), and Ichimoku Cloud can be used to determine the entry points and targets. Further background information on the technical analysis discussed below can be found here.

On the daily chart, the most important zone to watch is the resistance turned support (yellow box, chart below). A strong bullish bounce is likely to occur if price is able to again hold this zone. If not, the bearish inverted Cup and Handle target of ~US$135 is possible. This low would match the previous low set in July 2017.

Price will also likely find support between US$250-US$300, based on the Volume Profile to the right of the chart below. The Volume Profile shows volume, or buying and selling interest, at all price levels. This zone also has the psychological support of round numbers.

Open interest (top box, chart below) remains net long on Bitfinex, but shorts have been growing over the past few days. The 50/200EMAs remain bearishly crossed since the last crossing in March. There is currently no bullish RSI divergence, but, lows below US$350 will likely have a divergence with the low set in March.

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 dropped 20% since the bearish TK cross below the Cloud on July 30th.

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 without a bearish Kijun bounce, using these settings, indicating the singled daily Cloud settings are optimal for current market conditions.

On the ETH/BTC pair, price has largely been confined to several diagonal support and resistance zones. Price is currently teetering on the edge of the bottom support zone, while price structure suggests 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.

Conclusion

Scaling concerns and lack of retail or institutional interest in ETH continue to push prices lower. Based on several random stress tests from different vectors over the past year, the on-chain network has shown an inability to adequately scale. Although ERC20 tokens continue to dominate the ICO model and ETH has a first-mover advantage, competition from other platforms continues to increase. Grassroots growth surrounding total users, developers, and dApps continue to overshadow the current price for many traders.

Without the semblance of a relief rally with price pushing yearly lows, technicals have quickly turned bearish again. Although price continues to show signs of being oversold, buying volume has yet to make a decisive impact on any upward momentum. Bearish targets of US$280 or 0.0174BTC are possible over the next few weeks.

Without the semblance of a relief rally with price pushing yearly lows, technicals have quickly turned bearish again. Although price continues to show signs of being oversold, buying volume has yet to make a decisive impact on any upward momentum.