Ethereum Price Analysis - Whales moving ETH to exchanges

The monetary policy of ETH continues to be in flux, thanks in large part to the PoW to PoS transition and an unexpected increase in ETH inflation this year. A course-correction with a decrease in inflation on October 30th is certainly bullish for price, but it points to a bigger problem.

Ethereum (ETH) has dropped 25% this week and is currently at a 12 month low after a long period of low volatility. Overall, the crypto asset remains down 84% from the record high set in January. The market cap stands at US$22.95 billion, with US$2.01 billion traded in the past 24 hours.

Discussions regarding the future of ETH continue to be dominated by concerns around scaling, and more recently, inflation. The ETH inflation rate is currently ~7.3% and ETH miners are paid $2.5 billion a year despite a reduction in block reward after the Metropolis fork in October 2017. Inflation is set to be reduced further in a stepwise fashion over the course of the next few years.

Changes in the rate of inflation, or the block reward, are closely tied with a slated move from Proof of Work (PoW) to Proof of Stake (PoS) through the addition of Casper, which won’t likely be implemented until 2019-2020. A recent community poll, with votes weighted by wallet balance, unanimously supported decreasing the block reward to 1ETH per block until Casper is implemented (EIP 858). ETH developers subsequently decided to reduce the block reward to 2 ETH/block and delayed a difficulty increase (EIP 1234).

EIP 1234 will be implemented in the Constantinople hard fork on October 30th. A hybrid version of Casper is set for 2020 which will bring rewards for PoW and PoS to 0.6  and 0.22ETH/block, respectively. The full implementation of Casper is slated for 2022 which will remove PoW altogether, leaving the PoS block reward at 0.22ETH/block for stakers.

Turning to network fundamentals, hash rate and difficulty have both been in decline since early August. Block times, block reward, price, and transaction fees all effect mining profitability, which is currently sitting near all time lows. The network node count is currently 15,316, half of which reside in the U.S., and many of which are run by Infura.

There have also been significant movements of large quantities of ETH to exchanges, from both ICO holdings and from the ETH ICO itself. Generally, coins are not removed from cold storage and sent to an exchange for any other reason than to sell. 

According to dappcapitulation.com, most dApps and large ICOs continue to hold vast quantities of ETH despite wild fluctuations in ETH price. The most notable exception being EOS, which has sold 100% of it’s ETH treasury in stages, the last of which sold on July 2nd.

Despite decreasing ICO sales throughout the year, ETH Co-founder, Gavin Wood still believes that ICOs will continue to evolve. Crowdfunding website IndieGoGo recently announced a push towards selling security tokens (STO), including an offering for the St. Regis Aspen Resort in Colorado. Municipal bond ICOs, or initial community offerings, are also in the early stages of emerging as a new funding vehicle. 

Additionally, the Chicago Board of Exchange (CBoE) recently announced plans for a regulated ETH futures product later this year. The Chicago Mercantile Exchange (CME) has denied any plans to add more cryptocurrency futures products. Fundstrat’s Tom Lee believes that ETH futures are not bullish for the price of ETH.

In Asia, the Korean Won (KRW) and Yuan (CNY) pairs hold a slight premium while the Yen (JPY) pair is in line with the BNC Ethereum Liquid Index average price. Together, all three regions show relatively low interest in their fiat pairs, with ~5% of total traded volume combined.

Technical Analysis

ETH continues to experience extended downside pressure. Chart patterns, exponential moving averages (EMAs), divergences, Pitchforks, and Ichimoku Cloud can be used to determine the entry points and targets during this period, as well as the strength or weakness within the macro trend. Further background information on the technical analysis discussed below can be found here.

Since June of last year, the ETH chart has continually moved extremely technically, in spite of any fundamentals. The fourth clear and distinct chart pattern during this time, the bearish pennant, carries a 1.618 fib extension of ~US$111. This level matches a selloff wick that occurred in June 2017.

Long/short open interest on Bitfinex is net long but both longs and shorts are near all time high levels. A significant price movement in either direction will likely be exaggerated as these positions begin to unwind. The daily chart is also showing a significant bullish RSI divergence as price has made a lower low without making a lower low in momentum.

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 now dropped over 54% since the bearish TK cross below the Cloud on July 30th, which signaled a high likelihood of bearish continuation.

Conclusion

The monetary policy of ETH continues to be in flux, thanks in large part to the PoW to PoS transition and an unexpected increase in ETH inflation this year. A course-correction with a decrease in inflation on October 30th is certainly bullish for price, but it points to a bigger problem of a lack of long term understanding of Eth’s ideal issuance model. Continued changes or delays in ETH development only make other projects with a defined roadmap and monetary policy look more attractive. However,, companies continue to build on top of ETH, preparing for the next spike in adoption. The 2.0 version of ICOs are also in the nascent stages with STOs and bond offerings.

Technicals suggest no immediate bullish relief in sight, especially as ICOs and large holders continue to send large swaths of ETH to exchanges. The best case scenario to suggest an end of the bearish sentiment, as always, would be a high volume, immediate, intraday spike or cascade much lower. This is known as capitulation. To prepare for this scenario, traders often place bids at psychological levels or round numbers in the hopes of catching that knife.