Ethereum Price Analysis – Technicals strongly suggest new all time highs

Ethereum (ETH) has picked up in the past few days, after being quiet for the past month. The market cap now stands at US$34 billion, with US$1 billion traded in the past 24 hours. Price action suggests a re-test of the all time high at US$420, most likely before year’s end.

State of the Network

Excluding Ripple, which boasts almost 1 million transactions a day, ETH continues to have more transactions per day than any other cryptocurrency or asset. Much of this is thanks to continued ICO campaigns, although they appear to have slowed over the past month.

According to Coin Schedule, despite US$3.25 billion raised in 2017 thus far, total funds raised in October, US$380 million, were less than half of September, over US$800 million. This is likely due to global regulatory changes, especially in China where ICOs are now banned, and possible global ICO fatigue in general.

ETH’s Network Value to Transactions (NVT) ratio suggests that the asset may be undervalued based on its transactions sent. The metric was devised by Willy Woo and Chris Burniske, and is similar to Price-Earnings ratios when selecting stocks. ETH’s NVT ratio benefits from the large number of transactions per day.

Hashrate and difficulty continue to trend downward, which will reward miners who continue to mine the network. Some of these miners will likely mine at a loss based on mining profitability, when compared to other coins. In the case of Bitcoin, miners mined at a loss for years with the expectation that eventually it would pay off, and it did, essentially trading short-term profit for long-term profit down the road through holding.

ETH trading volume has been led by Bitcoin (BTC), Korean Won (KRW), and the US Dollar (USD) pairs on Poloniex, Bithumb, and Bitfinex respectively. Chinese Yuan (CNY) no longer has a direct fiat pair but is tradable as a USD future on OKEX. Japanese Yen (JPY) also has very limited exposure. Japanese traders typically use the ETH/BTC pair. The elevated KRW volume share is likely due to zero fee trading on Bithumb.

Talking Points

Solutions for the Parity multi-sig vulnerability, which locked assets totaling over 500,00 ETH (~US$175 million) from 573 users, continue to be explored. The Parity team released a post-mortem of the incident and said they are exploring a fix through Ethereum Improvement Protocols as it has become clear there will be no hard fork to unlock the funds.

In the meantime, an ETH futures market for institutional investors and corporations may emerge as early as Q1 next year, similar to Bitcoin’s futures market set to go live on December 10th. Code-named Virtuoso, the exchange will offer “futures, non-deliverable forwards, swaps and forwards,” and possibly deliver ETH to holders if contracts are held to expiration according to Bloomberg’s source. Much like Bitcoin futures markets, this indicates continual warming and appetite for cryptocurrency from institutional investors.

On the protocol front, the MicroRaiden Network (µRaiden) is set to be deployed on the ETH MainNet on November 28th. Unlike the bidirectional payment channels of Raiden or Lightning Networks, the MicroRaiden network offers free many-to-one off-chain payments between sender and receiver.

µRaiden uses its own token for payments which is both ERC20 and ERC223 compliant. While still in draft, the ERC223 specification is designed to prevent accidentally sent tokens from being held by a contract.

Dieter Shirley released further details of a separate specification this week,  ERC723, for a trackable non-fungible token management system. Unlike ERC20 or ERC223, which are used for fungible ICO tokens, ERC723 can be used for individual ownership instead of being aggregated on a ledger.

Examples of existing or planned NFTs are LAND in Decentraland, the eponymous punks in CryptoPunks, and in-game items using systems like Dmarket or EnjinCoin. Future uses include tracking real-world non-fungible assets, like real-estate (as envisioned by companies like Ubitquity or Propy).

Technical Analysis

Price continues to be range bound by a bullish multi-month Ascending Triangle chart pattern, with a 1.618 fib extension and measured move of ~US$650 and ~US$800 respectively. The pattern is currently in its 161st day of consolidation since the all time high in June, and has remained above the 200EMA throughout the consolidation, reinforcing the continued bullish bias. The resolution of the triangle should be known by the end of the month and will likely see an explosion in volume should the all time high be breached, at US$420.

Other indicators to help decide the direction of this move include Bollinger Bands, which measure volatility, and Ichimoku Cloud, which excels at measuring the inception of a trend.

Bollinger Bands on the daily chart have shown bullish expansion upwards for the past 11 days, following the second tightest daily band squeeze in ETH’s short history. This multi-day expansion is highly suggestive of bullish continuation and is known as “walking the bands.”

Ichimoku Cloud on the daily chart with the faster singled settings (10/30/60/30) show that all Cloud metrics bullish. A bullish TK cross occurred above the Cloud six days ago, and is considered the most bullish signal in the Cloud system. Lagging Span, the last of the Cloud entry signals, has also closed above price.

Together, the Cloud metrics are suggesting a long entry signal. As price moves upwards, Cloud will also gain a positive slope. A thin cloud signifies a strong trend whereas a thicker Cloud is indicative of periods of consolidation.

Ichimoku Cloud on the daily chart with doubled settings (20/60/120/30) for a more accurate and smoother signal show all Cloud metrics bullish. Cloud support held the price cleanly in the US$300 range, and the earliest long entry signal occurred on the Kumo breakout and bullish TK cross on October 13th. Throughout the trend, there will be attempts for mean reversion which almost always occur through touches of the Kijun (red).

While actively in a trade, traders may lean on the Bill Williams’ Fractal indicator to determine stop loss levels. A trailing stop can also used. The Fractal levels appear after a high-low-high, or low-high-low in candle structure. This means the Fractal indicator is lagging and can potentially occur after the level is needed by the trader.

The idea is that during a bull trend, price should not be breaking horizontal levels of bearish fractals (high-low-high), and during a bear trend, price should not be breaking levels of bullish fractals (low-high-low). Much like Ichimoku Cloud, the Fractals help remove the guesswork and bias out of deciding stop loss levels.

If a trade is entered based on the daily chart, Fractal signals from the daily chart are typically used. However, the lower time frame, four hour chart in this case, Fractal signals can be used if needed.

For current long trades, the bearish Fractal print (yellow) at the US$288 horizontal level would be a typical stop loss based on the Fractal, regardless of entry. During the long trade, bullish Fractals are irrelevant for the purposes of determining a stop loss. As bearish Fractals print, you continually move your stop loss up to that horizontal level. Stop loss exits can be continually moved to the horizontal lever as bearish Fractals print.

With a recent trade on the four hour chart, starting with the US$288 Fractal, the stop loss was continually moved up until the stop loss was hit at US$325 (yellow). This would obviously not be advantageous considering that price has moved much higher. Typically, when entry signals based on a higher timeframe, exit signals should not be used on a much lower timeframe.

Lastly, the ETH/BTC ratio on the daily chart has begun to form a double bottom as ETH begins to rise while BTC consolidates at all time high levels. After breaking the horizontal resistance at ~0.052BTC, the 200EMA and previous Descending Triangle point will be the next resistance targets.

Conclusion

Although ICO season has slowed, transactions per day have continued to keep pace and are far higher than almost all other cryptocurrencies and assets. As the ICO market ebbs and flows, these transactions per day may increase or decrease accordingly. An end to the consolidation will likely bring many more transactions to ETH thanks to transactions to and from exchanges.

ETH continues to consolidate while pushing up on higher lows towards a retest of all time highs. Technicals strongly suggest a push will go beyond highs at US$420, to US$650-$800 minimum.

IMPORTANT: Information provided is for educational purposes only and does not constitute investment advice. Readers should always conduct their own due diligence before making any investment decision.