Ethereum (ETH) now has a US$28 billion market capitalization, second only to Bitcoin’s US$72 billion. ETH is now the fourth largest digital cryptocurrency or asset by volume, below Bitcoin, Bitcoin Cash, and Ripple.
ETH has been in a tight range for the past week with very negligible volatility. A decline in volume and volatility is very likely due to the upcoming Metropolis hard fork, the 3rd of 4 launch stages for Ethereum.
At this point, investors and speculators alike may have decided to either hold or sell prior to the pending hard fork, while waiting to see how the upcoming changes are perceived and how they affect the network.
A large addition to Ethereum after the Metropolis hard fork will be Zero-Knowledge Succinct Non-Interactive Argument of Knowledge or ZK Snarks, based on zero knowledge proofs, which allow for completely anonymous transactions. These have already been successfully implemented in the Byzantium code on the Ropsten testnet, thanks to help from the Zcash (ZEC) dev team.
Difficulty and hash rate have returned to previous highs despite continued exponential difficulty adjustments, making ETH less and less profitable to mine.
ETH will be changing to hybrid Proof of Work (PoW) and Proof of Stake (PoS), and eventually fully Proof of Stake. Casper will change the consensus algorithm allowing for PoS. Every 100th block will be mined via PoS. With a target block time of 15 seconds, this would create 57.6 PoS blocks per day.
Due to scheduled difficulty adjustments, ETH will become increasingly unprofitable to mine, to a point where the PoW hash rate will decrease significantly. The mining reward will also be decreasing from 5 ETH to 3 ETH per block, a significant reduction in inflation. ETH miners discussed these changes further here. This transition will likely complete over the next few years according to Vitalik Buterin.
As the first wave of global ICOmania begins to slow due to multiple government bodies worldwide issuing regulations, daily transactions per day have slowed as well. Despite collectively raising US$537 million last month, the median ICO raise was US$6.7 million in Q3, down ~US$1 million from Q2 according to Token Report.
Ether exchange traded volume over the past 24 hours has been led by the Bitcoin (BTC) markets.
The US Dollar (USD) markets aren’t far behind, with Korean Won (KRW) markets rounding out the top three. Yuan (CNY) trading remains a shadow of its former self due to exchange closures.
There is no trading against the Yen (JPY) on any major exchange as Japanese traders use the BTC pair to gain exposure. As Japan has become increasingly friendly towards cryptocurrency trading by giving their regulatory blessing to 11 exchanges, expect this to change very soon.
Technical Analysis
As ETH is currently trendless, this is the best time to create a plan of attack or roadmap on how to trade the future move. Using a few key indicators like Ichimoku Cloud, Bollinger Bands, and EMAs can give traders a headstart on the direction of an emerging trend.
The Ichimoku Cloud on the daily chart, using singled settings (10/30/60/30) for quicker signals, continues to show neutral and bearish signals. Price has not yet cleanly broken Cloud, the TK cross is bearish, and Cloud itself is also bearish. A long entry signal does not trigger until all of these metrics flip bullish, which based on price and Cloud structure may occur within the next seven to ten days.
The Cloud itself is thin and flat which suggests a zone that has been ranging for an extended duration. A thin Cloud not only represents a lack of volatility, but also represents a lack of support or resistance in a given zone.
When price is near the thin Cloud, in about a month if momentum remains non-existent, there is an equal chance of price breaking above or below the Cloud.
The Ichimoku Cloud on the daily chart, using doubled settings (20/60/120/30) for more accurate signals, also continues to show a mixture of neutral to bearish signals. Price is in the Cloud with a bearish TK cross. Future cloud was briefly bearish but remained bullish. A long entry signal would trigger when all metrics flip bullish.
An aggressive long entry signal would trigger on a Kumo breakout, or candle close above the cloud. This can occur regardless of volume. In this case, the Kumo breakout will likely align with a Bollinger Band breakout, adding to bullish confluence. The safest long entry would trigger upon breaching the double top at ATHs.
Bollinger Bands (BBands) are a measure of volatility that can be used as a predictor for price action. They are the tightest they have been since February this year. The magnitude (BBW) of the squeeze confirms the duration of sideways non-action.
Price has been decidedly above the median of the BBands (%BB) for over a week. %BB is a 20 period simple moving average. Typically, this indicates a bullish bias once the squeeze completes.
Volume has been trailing off for over a week, further adding to the evidence of price consolidation. A candle close above or below the BBands on volume would be a definitive entry signal. The caveat here is that BBands frequently indicate a fake out move before the actual move occurs, which is why watching volume is crucial.
The RSI is at 50, which signifies that oscillators on this timeframe have zeroed out, or there is equal up and downside momentum potential for the beginning of a new trend. The trend beginning in January held RSI above 50 until June, when price pulled back. This breach of 50 also occurred when price broke the 20SMA for the first time, and can be seen as the end of the trend, or a long exit signal. Furthermore, the breakdown occurred after price broke the daily Kijun on the Cloud, only adding to bearish confluence.
Lastly, on the four hour chart, a bullish 50/200EMA cross was followed by a breach of the Adam and Eve horizontal resistance. Both signal strong bullish continuation.
Conclusion
Total money raised through ICOs, transactions per day, and price volatility have all decreased in the month of September. This is likely directly related to the upcoming hard fork as all eyes are on the success or failure of any news regarding the health of the network. Changing the consensus algorithm of any cryptocurrency is potentially extremely risky, even more so with a US$28 billion market cap.
Technicals, despite showing trendless consolidation, are leaning toward a bullish bias. Aggressive traders will enter on any signs of life while others will wait for confluence and confirmation on Cloud and Bollinger Bands. The first target is always the previous local high, in this case US$395. Beyond that, ETH re-enters the land of price discovery where anything can happen.
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