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Ethereum’s Vicious Cycle

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Once the epicenter of a booming cryptocurrency market, Ethereum has faced crippling price blows in recent months. The coin’s sudden and perpetual decline is being framed by some as an existential crisis, which has transformed a once virtuous cycle of appreciation into a vicious downturn. As it turns out, an evaluation of Ethereum’s value-utility matrix could yield some important insight on the future of the developer’s cryptocurrency.

Reservation Demand

The ICO melt-up of 2017 made Ethereum the de facto reserve currency of token offerings. Since May 2017, investors have been keen on acquiring and holding ether to participate in the hundreds of initial coin offerings being launched on the Ethereum network They were duly rewarded for their efforts as 80% or more of token offerings were launched on the ERC protocol. This helped catapult ether’s price above $1,400 earlier this year.

The influx of ICOs and investors’ appetite to participate in them boosted Ethereum’s reservation demand, which measures how long users hold a currency. Reservation demand is also the main catalyst for how a currency is priced.

Most metrics available on ICOs show a sizable and growing market but the pace of expansion has slowed significantly in recent months. According to ICOData.io, startups raised just $337 million via coin offerings last month, the lowest in over a year. Through the first 17 days of September, token sales have amounted to a meager $21 million. To get a sense of just how fast the market has fallen, consider that token offerings raised more than $1.6 billion in December alone and roughly $5.5 billion over a four-month stretch.

There’s also strong evidence that ICOs are cashing out their ETH holdings for fiat currency as companies begin funding their operations. As Hacked reported last week, ICOs recently sold 157,700 ETH over a seven-day period, the largest fire-scale since March.

While ether’s collapse cannot be divorced from the broader market downturn, it appears that the loss of reservation demand is partly to blame.

Need Gas?

The decline in reservation demand raises deep concerns over ether’s long-term value proposition. That’s because some observers aren’t convinced that the network’s “gas” impetus can provide a steady avenue for growth. As Jeremy Rubin recently argued, Ethereum will eventually fall to zero through economic abstraction – a phrase that describes network fees paid in assets other than ether. Rubin also argues that this fix isn’t as easy as requiring smart contract payments through ether. Requiring every token transaction to also depend on ETH for fees creates third-party dependency and downward pressure on the price. If a user had to sell their token for ETH every time they wanted to transact in that token, then the selling would occur before the transaction needs it.

But solving the gas problem, as Vitalik Buterin is purporting to do, seems to run contrary to the idea that Ethereum should benefit from reservation demand. Software engineer Vijay Boyapati recently argued this point in a series of 12 tweets. Some highlights:

“The investment case for Ethereum is that it will become the most liquid token in a digital economy built atop of a Turing-complete decentralized computer that can execute smart contracts. But how do these contracts affect reservation demand?

“For the most part smart contracts have no [e]ffect whatsoever on reservation demand, just as transactional use on Bitcoin plays little-to-no role in reservation demand for it. The primary source of reservation demand is the removal of currency from the order book of exchanges.

“There is, however, one particular kind of smart contract that has increased reservation demand for ETH: contracts used for ICOs. These contracts lock up supply as ETH is held in reserve by companies raising capital to fund operations.”

Value and Price

Despite these concerns, a future where ether’s utility value correlates with its price isn’t difficult to imagine. According to Michael J. Casey of the MIT Media Labs Digital Currency Initiative, the top blockchains will always retain a level of reservation demand even as their utility improves. In the case of Ethereum, reservation demand will likely increase once it transitions to proof-of-stake consensus in the near future.

What many experts seem to agree on is that the ICO market must evolve from the current cash-grab model to something more beneficial for the blockchain space as a whole. After all, latest cash-out of ether suggests that very few startups plan on utilizing the protocol’s smart contracts anytime soon.

The author recent argued that ICOs may be approaching a mass extinction event in the not-too-distant future. This view isn’t unique: at the height of ICO mania, Vitalik Buterin said the vast majority of token offerings will fail, ushering a new era of higher quality ICOs (“tokens 2.0”). Whether the ICO market is “dying” or “evolving” is a matter of semantics. A more accurate description is that it is being purged of scams and overt speculation as investors become more in tune with proper valuation metrics.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 738 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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Analysis

Crypto Update: Sideways Drift Continues but Sellers Still in Control

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While the bounce on Monday gave some hope to crypto bulls that last week’s plunge was just a correction in an ongoing broader counter-trend move, so far, we haven’t seen meaningful follow-through. That means that the bearish short- and long-term trends are still dominant in the segment and sellers are clearly in control of every major top coin.

Also, while volatility is relatively low, correlations are still elevated, and volume patterns are bearish as well, so our trend model remains on sell signals with regards to the overwhelming majority of coin on all time-frames. Traders and investors are still advised to stay away from entering new positions, as we have no evidence the bear market is over, and at least the test of the lows is likely in the coming months.

That said, a quick recovery above the primary resistance levels would be a positive sign here, but until we see signs of technical strength, the defensive approach is warranted as bearish risks remain very high here.

BTC/USD, 4-Hour Chart Analysis

Bitcoin’s relative stability is still the only positive sign among the top coins, but BTC also lacks bullish momentum and it failed to leave the close vicinity of the key $3600 support level. The $3850 resistance is out of reach, for now, and given the clearly bearish long-term setup, traders and investors shouldn’t enter positions here.

A move above that level would be a positive sign for bulls, with further zones between $4000 and $4050, and near $4450, but we still expect a move towards the support levels near $3250 and $3000 in the coming weeks, even if a broader bottoming process might already be underway.

ETH/USD, 4-Hour Chart Analysis

While Ethereum spiked higher again towards the $130 resistance level today, the move failed again and bulls failed to make technical progress, with the recent low still being in danger. A sustained push above $130 could still signal a failed break-down pattern, but the lack of bullish momentum points to a continuation of the decline.  Key support is found near $120 and between $95 and $100, while further resistance is ahead at $145, $160, and near $180.

Altcoins Unchanged and Bearish After Choppy Day

LTC/USD, 4-Hour Chart Analysis

The volatility compression continued in all of the major altcoins as well, but the broad selling pressure is still apparent in the segment. Litecoin failed to get close to the primary resistance zone near $34.50 despite the early-week rally attempt, and it continues to threaten with a move below the key $30-$30.50 support zone.

A breach of support would likely trigger a move towards the $26 level, with the oversold short-term momentum readings now being cleared in the market of LTC. Further strong resistance is ahead near $38 and $44 and with support found near $23, and traders and investors still shouldn’t enter positions here.

XRP/USDT, 4-Hour Chart Analysis

Ripple has been showing signs of relative weakness again today, after the brief period of stability and the technical picture continues to be negative on all time-frames, and our trend model is also on short- and long-term sell signals. The $0.32 price level is still in focus, and we still expect a move below $0.30, with strong support found near the $0.26 level, with resistance ahead near $0.3550 and $0.3750.

DASH/USD, 4-Hour Chart Analysis

Dash remained among the relatively weaker majors as well, and it still hovering around the $70 price level after bottoming out close to $67.50. A test of the bear market low near $56 seems very likely in the coming weeks, and only a move above the strong resistance zone between $76.50 and $80 would change the short-term outlook for the coin.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 443 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Analysis

Crypto Update: Coins Retreat After Rally Attempt

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While yesterday the major cryptocurrencies recovered their weekend losses and bounced back above their prior lows, the bounce got halted before changing the short-term technical setup. As the world is focused on today’s key Brexit vote, trading volumes are once again very low, but the lack of bullish follow-through is a warning sign for traders here even considering the low level of trading activity.

We haven’t seen signs of a developing leadership in recent days, with correlations remaining high and with the top coins failing at the first major levels of resistance for now. That said, should the coins hold above yesterday’s lows and push above consolidation range, the formation of a bear-trap pattern is still possible even as odds still favor the continuation of the bear market.

In light of the short- and long-term setups, traders and investors should still stay away from entering new positions, with our trend model still being on sell signals on both time frames for the majority of the top coins.

BTC/USD, 4-Hour Chart Analysis

While the breakdown in Bitcoin got bought yesterday, the bounce failed to reach the $3850 level and the most valuable coin is still hovering near the $3600 level, leaving both the neutral short-term, and of course, the long-term sell signal intact in our trend model.

A move above $3850 would be a positive sign for bulls, but odds still favor a negative outcome and a likely test of the $3000 level in the coming weeks, so even short-term traders should still away from entering new positions here. Further, weaker support is found near $3250, with resistance ahead between $4000 and $4050, and near $4450.

ETH/USD, 4-Hour Chart Analysis

Although Ethereum briefly topped the $130 level after plunging below the $120 support, a failed breakdown pattern hasn’t been confirmed in the previously leading coin, and the short-term sell signal remains in place in our trend model.

With the bearish long-term picture in mind, and with the oversold short-term momentum readings now cleared, the outlook for the coin remains negative, even as the resumption the counter-trend rally is still a possibility here. Further support below $120 is found between $95 and $100, while resistance is ahead at $160 and near $180.

Altcoins Still Stuck in Downtrends Across the Board

LTC/USD, 4-Hour Chart Analysis

Litecoin’s rally stooped near the upper boundary of last week’s consolidation range, and although the coin is safely above the key $30-$30.50 support zone, the momentum of the bounce is waning. The bearish long-term forces still seem to be dominant, and the coin is well below the primary resistance level near $34.50, so our trend model remains on sell signals on both time-frames. Further strong resistance ahead near $38 and $44 and with support is found near $26 and $23.

XRP/USDT, 4-Hour Chart Analysis

Ripple experienced a brief period of relative stability after the weekend sell-off, but that didn’t change the bearish overall picture for the coin, and technicals are still hostile for bulls here. The coin continues to hover around the $0.32 price level, but we still expect a move below $0.30 in the coming weeks with a test of the bear market lows being the most likely scenario.

Another strong support level is found near the $0.26 level, with resistance ahead near $0.3550, $0.3750, and in the key long-term zone between $0.42 and $0.46.

XMR/USDT, 4-Hour Chart Analysis

Monero is also among the weaker majors and although it bounced back together with the broader market, it failed to sustainably recapture the $45 level, and it remains in clear short- and long-term downtrend. Our trend model is o sell signals on both time-frames as well, and the re-test of the bear market low just below $38 seems very likely in the coming weeks.

Featured image from Shutterstock

Disclaimer:  The analyst owns cryptocurrencies. He holds investment positions in the coins, but doesn’t engage in short-term or day-trading, nor does he hold short positions on any of the coins.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 443 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Ethereum

ETH/USD Price Analysis: Ethereum’s “Thirdening” Approaches

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Ethereum’s trading range narrowed on Tuesday, as attention shifted to the keenly awaited Constantinople upgrade anticipated in the next 36 hours. The hard fork, also known as the “thirdening” for reducing the amount of new ETH released into circulation, is expected to bring about much needed technical changes to the world’s third-largest blockchain.

ETH/USD Update

Ether’s price fluctuated between $127-$131 on Tuesday, and currently resides at the lower end of that range. At the time of writing, ETH/USD was trading at $127.56, down 1.4% over the past 24 hours. During the previous session, the cryptocurrency gained more than 10% in the span of one hour, likely in response to bitcoin’s sudden move higher. More on that story can be found here: Crypto Markets Swing Higher as Bitcoin Climbs Above $3,700.

The sudden breakout alleviated the risk of a fast move back toward $100, which appeared likely at the start of the week, according to the daily technical chart for Jan. 14. As it currently stands, there isn’t much in the way of resistance until $160, a previously difficult region to penetrate for the bulls. Although ETH has experienced oversized moves relative to the broader market in the last month or so, it’s more likely to trade in lockstep with its peers now that the Constantinople supply crunch has faded.

Ethereum continues to hold the third spot both in terms of market capitalization and trading volumes. In the market cap rankings, it trails XRP by roughly $200 million. Its daily trade volumes reached $2.7 billion on Tuesday for a 30-day total of $81.4 billion, according to CoinMarketCap. Only bitcoin and Tether (USDT) are more actively traded.

Constantinople Upgrade: Where We Stand

Constantinople is scheduled to go live at block 7,080,000, though pinpointing an exact moment for a hard fork is never easy. Hacked previously reported that the upgrade would likely fall between Jan. 14-18. A countdown provided by Amerdata suggests that the block confirmation will occur just before midnight on Wednesday, Jan. 16.

The looking hard fork will implement five Ethereum Improvement Proposals (EIP), which impact everything from block rewards to scalability. Proposal EIP 1234 will adjust the size of block rewards to 2 ETH from 3 ETH – hence, the “thirdening.” Back in 2017, Ethereum implemented the Byzantium hard fork, which lowered the block reward to 3 ETH from 5 ETH previously. Unlike bitcoin, which halves the block rewards every 210,000 blocks, Ethereum doesn’t have an upper ceiling on its circulation. That being said, lowering block rewards is intended to reduce inflation by lowering the supply of newly created coins.

Once Constantinople is live, Ethereum’s inflation rate will fall to 4.8% from the current rate of 7.7%. The following chart courtesy of Consensys showcases the impact of block rewards on ETH supply and overall inflation:

As of Jan. 12, only 16.4% of Ethereum nodes were upgraded ahead of the hard fork.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.7 stars on average, based on 738 rated postsSam Bourgi is Chief Editor to Hacked.com, where he leads content development for one of the world's foremost cryptocurrency resources. Over the past eight years Sam has authored more than 10,000 articles and over 40 whitepapers in the fields of labor market economics, emerging technologies, cryptocurrency and traditional finance. Sam's work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Contact: sam@hacked.com Twitter: @hsbourgi




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