Ethereum Price Analysis - The network marches on

Ethereum (ETH) now has a US$31 billion market capitalization, second only to Bitcoin’s US$93 billion. Over the past 24 hours, ETH was the second largest digital cryptocurrency or asset by trade volume, below Bitcoin. Despite a spike in price in the days preceding the Byzantium Fork, which is now live and running smoothly, price remains largely range bound. The Metropolis update will also include a second hard fork, Constantinople, expected in 2018.

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After any fork or protocol change event, it’s important to evaluate how the changes were perceived by the network and why, especially with a cryptocurrency with a US$31 billion market cap. The metrics include; transactions per day, difficulty, hash rate, block time, and total nodes. Transactions per day will continue to rise should the network demand continue unabated, just by the nature of these changes.

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 One of the goals for Metropolis is to increase scalability through transaction capacity of the network. This can either be done by decreasing block time, thus allowing for more transactions per day, or, increasing block size. In this case, block times have dropped significantly. 

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Difficulty has also dropped significantly, as scheduled. Block time and difficulty are directly related. Should hash rate remain the same, a decrease in difficulty means a decrease in block time. 

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Hash rate has now hit a new ATH, with some miners likely attempting to cash in on the substantial decrease in difficulty. Although the difficulty bomb has been delayed by one year, scheduled difficulty increases will continue, again squeezing mining profitability.

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Block rewards have dropped from 5 ETH to 3 ETH to combat inflation as well as balance the block time changes. The net difference is currently more ETH per day than previously but this will also continue to decrease.

Etherium TA 17 Oct Pic 6 bar chart2There are more than 25,000 nodes, with the highest concentration in the United States. To run a full node, the network currently requires 350GB of storage space, and rising.

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Altcoin.io completed the first BTC < > ETH atomic swap this week. Atomic swaps are on-chain exchanges for two different cryptocurrencies and are a step in the right direction towards additional decentralization measures preventing theft of user funds.

Custodial risk continues to plague cryptocurrency infrastructure, with another hack on Bithumb, South Korea’s largest exchange, affecting 30,000 users. This marks the second attack on the exchange in six months, with many speculating North Korea to be the culprit in both cases.

XBT Provider announced the availability of ETH exchange-traded notes denominated in SEK and EUR. This is the first such product for ETH, which allows users to gain exposure to ETH without worrying about custodial risk of their own coins, or understanding how ETH works.

ETH exchange traded volume over the past 24 hours has been led by the South Korean Won (KRW) markets. The US Dollar (USD) and Bitcoin (BTC) markets aren’t far behind, taking an equal share each. The top three exchanges for each pair are Bithumb, Bitfinex, and Poloniex respectively.

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Technical Analysis

Price has been essentially range-bound for months and has now formed an ascending triangle, a bullish continuation pattern, with a 1.618 fib extension and measured move of US$650 and US$790 respectively.

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Due to the duration and size of this pattern, I would not make any trading decisions until the pattern breaks. Trend following Indicators, such as Ichimoku Cloud, often have trouble giving accurate signals towards the end of consolidation of these patterns. This was the case for Bitcoin’s large ascending triangle in early 2016, with several TK crosses and recrosses. Price did remain above the Cloud the entire time, indicating bullish bias.

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The Cloud on the daily chart, using singled settings (10/30/60/30) for quicker signals, shows all signals recently flipping bullish. This occurred on the Kumo breakout five days ago and should be considered a strong long entry signal, larger consolidation pattern notwithstanding. 

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The Cloud on the daily chart, using doubled settings (20/60/120/30) for more accurate signals, also shows all signals recently flipping bullish. This occurred with a bullish TK cross above Cloud five days ago, a strong bullish continuation signal, larger consolidation pattern notwithstanding.

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Pitchforks can help determine targets behind ATH. Each diagonal of the Pitchfork can be thought of as a potential reversal zone or support/resistance line. The upper yellow diagonal zone being ‘most overbought,’ or the top bounds of the trend, and lower yellow diagonal zone being ‘most oversold,’ or the bottom bounds of the trend. The median line should be thought of as trend reversion, in this case above US$500.

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Lastly, on the ETH/BTC daily chart, there is a bearish 50/200EMA Death cross indicating the beginning of a down trend. This is caused by and represents Bitcoin’s growth in price beyond that of Ethereum currently

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Conclusion

Ethereum is well on its way to addressing several scalability concerns which bogged down the network during several large ICOs. The roadmap later on also phases out Proof of Work completely in favor of Proof of Stake, which will be a key change to watch. Technicals are almost entirely dependent on the conclusion of a chart pattern with a heavily bullish bias. The pattern is nearing an end and should resolve in a target between US$650-$800.