Ethereum Price Analysis – Volatile markets on low volume

Ethereum (ETH) has declined 25% over the past month on heavy retracements. The market cap now stands at US$58.64 billion, with exchange-traded volume of US$1.14 billion in the past 24 hours.

The Ethereum network currently has 18,266 public nodes. The top 100 addresses own 35% of the available supply and the top 10 addresses owning 10% of the available supply. Metamask, a Chrome browser wallet for ETH, recently had it’s 1 millionth download.

Transactions per day have essentially been flat since the end of April, with average transaction fees rising slightly in the same period. There has been, on average, 40,000 pending transactions this week.

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio continues to rise, when compared to the previous twelve months, and is near a two-year high. A clear downtrend in NVT suggests a coin is undervalued for its utility and should be seen as a bullish price indicator.

Hash rate and difficulty increases have stagnated since mid-March, likely because ETH mining profitability has also stagnated. ETH Proof of Work (PoW) mining will eventually become entirely unprofitable and impossible through the Casper Proof of Stake (PoS) transition. Vitalik Buterin’s Casper FFG is slated to go live as early as September of this year. This change also comes with a significant reduction in inflation, with 500,000 ETH per year or 0.22 ETH per block. The previous hard fork, Metropolis, reduced the block reward from 5 ETH to 3 ETH.

According to coinschedule.com, the total amount of funds raised in Initial Coin Offerings (ICOs) in 2018 has already far surpassed 2017, with each month this year averaging US$1.9 billion. There have been 396 ICOs in the first six months of 2018, compared to 210 ICOs in all of 2017. Telegram’s two pre-sales and Venezuela’s alleged Petro private pre-sale top the list of largest raises this year.

According to dappradar.com, the top decentralized applications (dApps) by volume over the past week have all been decentralized exchanges; IDEX, Bancor, and ForkDelta. Decentralized exchanges help mitigate custodial and regulatory risk, but often lack the liquidity most traders have come to expect while using centralized exchanges. Most of the other top 10 dApps are also related to exchanges or marketplaces for peer-to-peer trading. According to a recent Consensys post, a total of 1,552 dApps have been created with more in development.

ETH exchange traded volume in the past 24 hours has predominantly been led by the Bitcoin (BTC), Tether (USDT), and U.S. Dollar (USD) pairs. The majority of trading occurred on OKEX, Bitfinex, and Binance. In Asia, the KRW trading pair holds a 1.7% premium, JPY volume is down dramatically from last week, and CNY volume is nearly absent.

The over the counter (OTC) exchange LocalEthereum averaged less than ~130ETH per day in transaction volume over the past week, according to dappradar. In comparison, LocalBitcoins averaged 6,843 BTC 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

Much like the entire cryptocurrency market, ETH has been ranging violently over the past month. Impatient trend-based traders may find this frustrating, as any semblance of a trend gets quickly rebuked. Nonetheless, Exponential Moving Averages (EMA), chart patterns, and Ichimoku Cloud can help distinguish actionable trading signals. Further background information on the technical analysis discussed below can be found here.

On the daily chart, a bullish 50/200 EMA cross is barely hanging on, with price below the 200 EMA. In general, EMA crosses can heavily lag market movements, making and entries based on the crosses alone suboptimal. Open interest on Bitfinex is currently net long with shorts rising substantially over the past month and reaching an all time high (top panel, chart below). There are no divergences and volume is unremarkable.

There is also a potential inverted head and shoulders chart pattern on the daily time frame. The hallmarks of this bullish reversal pattern include a descending volume profile and a series of three extreme lows, with the second low exceeding the first and third low. The pattern has a 1.618 fib extension and measured moves of US$1,200 and US$1,300 respectively. Expect volume to increase substantially if price breaks the neckline (red).

The Ichimoku Cloud uses four metrics 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 mixed; price is in Cloud, Cloud is bullish, the TK cross is bearish, and the Lagging Span is in Cloud and below price. A traditional long entry will not trigger until price is above the Cloud.

The status of the current Cloud metrics on the daily time frame, with doubled settings (20/60/120/30) for more accurate signals, is mixed and leaning bearish; price is below Cloud, Cloud is bearish, TK cross is nearly bearish, and the Lagging Span is in Cloud but below price. An optimal short entry triggers with price below Cloud when the TK cross flips bearish. A traditional long entry will not trigger until price is above the Cloud.

Lastly, a Pitchfork on the daily chart with anchor points in June 2017, January 2018, and April 2018 shows the previous local high being rejected at the pitchfork median line (ML). Price will continually attempt to return to the ML throughout any given trend. A breach of the ML on volume would suggest a move to the next diagonal resistance.

Conclusion

Ethereum continues to show grassroots growth surrounding total users, developers, and dApps, all of which has not translated into substantial transactional growth over the past few months. Much of the smart contract architecture used by ETH remains in the experimentation phase.

The PoW to PoS shift continues to be a top priority in the realm of core ETH protocol development. The events surrounding the transition should prove to be a catalyst for speculation. Changing the consensus protocol for a billion dollar asset is no small feat, but maybe what is required to enable successful scaling measures for the dApp economy and beyond.

Technicals are mixed to bearish with nothing immediately actionable from a trading perspective. A multi-month drop in volume has created a price structure showing a potential reversal. Trend based indicators like EMAs and Cloud remain neutral to bearish. There will likely be a large move in price well-before the protocol upgrade, currently slated closer to Q4 this year.

Ethereum continues to show grassroots growth surrounding total users, developers, anddApps*, all of which has not translated into substantial transaction growth over the past few months. Much of the smart contract architecture used by ETH remains in the experimentation phase.*