It has been about a week since my last market analysis. In my last post, I focused on Bitcoin. Since then, we have seen some correction in BTC price. While this post is meant to be focused on Ethereum, I will first like to do a quick update on BTC.
Quick update on BTC
Since my last post, we have seen BTC price corrected to as low as $8400 but it quickly bounced back and hovered between $8800 to $9000. Today, we are seeing some kind of a surge to the long term trend line in purple. This is one of the key levels that I hope to see BTC break above.
Overall, I am bullish on BTC. The fact that the price bounced back so quickly since the mini-correction to $8400 indicated strong buying interest. I think there is a good chance that BTC price will breakthrough the trendline today and flip it to support.
A look at ETH price
In the past 2 weeks, ETH had a price surged to as high as $227 and then retraced to the 23.6% fibonacci retracement level as seen in the chart below. The lowest it went was around $195. But, similar to BTC, it quickly bounced back to hover between $200 to $210.
In the chart, you might noticed that I have drawn a triangle in cyan. That is a short-term triangle pattern that could have gone in either direction. Today, it seems that ETH had broken that triangle to the upside.
This is significant because usually during a trend reversal (e.g. from bullish to bearish), there will be indicators flashing at the smaller time-frame. For me, I will typically look at the 4-hour candles and at most go to the 1-hour chart. In this case, the 4H chart seems to indicate that there is no trend reversal and it is likely that ETH will continue to go higher from here.
In my earlier post, I mentioned that in this rally, ETH has been making higher highs that coincide with the 1.272 fib extension level. This sequence seems to have been broken in the previous surge as it tested the 1.618 fib extension level in the most recent rally.
So if there is going to be a next wave of rally, I think ETH will be testing the 1.272 fib extension level ($237) again with a strong possibility of testing the 1.618 fib extension level of $250. Notice that the $250 level coincides with the long term trendline I drew in red. The trendline can be seen more easily in the weekly chart below. On the weekly time-frame, you can also see that the bullish pattern is still intact.
To summarize, the bullish pattern for ETH still remains intact especially on the larger time-frame. On the smaller time-frames, there is no clear indication of a reversal. My target for a $300 ETH in this rally remains the same.
Fundamental reasons to be bullish on Ethereum
In my previous post on Bitcoin, I shared the stock-to-flow BTC valuation model by PlanB. Likewise for Ethereum, I am also going to give some fundamental reasons for you to be bullish.
Institutional investors are very bullish
The Grayscale Ethereum Trust is a financial instrument for investors to invest in Ethereum. You have to be an accredited investor in order to invest and the minimum investment size is US$ 25,000. Hence, this trust is largely believed to be invested by institutions or people might call them the smart money.
Source
As you can see from the screenshot above, the market price per share is at $96.25 and the ETH holdings per share of the trust is only worth $19.42. This means that investors of this trust are pricing a 395% premium for ETH! In other words, these investors value ETH at over $1,000 based on current ETH price of $210.
Even during the recent crash in mid March, the price premium remained extraordinary high. This probably indicates strong fundamental belief that ETH is highly undervalued. My personal take is that eventually this 2 lines will converged. Either the price of the trust collapse or ETH price catches up. Between the 2 scenarios, I think it will likely be a mixture of both. The price of the trust will probably stabilize or drop a little while actual ETH price catches up. In any case, I do not think it is wise to bet against the smart money.
EIP-1559
EIP stands for Ethereum Improvement Proposals. We can draw a little bit of parallel between EIP and the proposals in the Decentralized Hive Fund. Essentially, Ethereum has a wide decentralized developers pool. The EIP is a way to coordinate what changes to prioritize and implement.
EIP-1559 is a proposal, currently work in progress, which is aimed to improve gas fee price efficiency. Currently, Ethereum gas price is dynamically determined using a simple auction mechanism, which leads to inefficiency and overpayment of gas fees. EIP-1559 aims to change this by implementing a base fee which is determined by the blockchain itself depending on how congested the network is. Users can then pay a "tip" to miners if they want their transactions to go through faster. Regardless whether there is a tip, the transaction will still go through eventually as long as the base fee is paid.
What is important here is that the base fee will always be burnt. This means that there will be a decrease in Ether supply, or at least reduce the inflation rate, which naturally give a boost to ETH price.
Source
If you are keen to find out more, David Hoffman wrote a nice article on this.
Not enough reasons? Here are 32 more
Adam Cochran recently wrote an article on 32 findings he observed while analysing the top 10,000 Ethereum wallets. I encourage you to read the article while I will just highlight a few key findings that I think are very bullish.
Adam estimated that the staking rewards from Ethereum 2.0 will be in the range of 12-17%. This is because not everyone owning Ether will be staking and many of the wallets are also inactive. Adding on those that are burnt, lost or locked in DeFi, the actual number of Ether that will be staked is very much less than originally estimated. Since the same reward pool is shared with less stakers, each staker is likely to get more yield. Just to add here that you will need at least 32 Ether to stake when Ethereum moves to Proof-of-stake in version 2.0.
Next, he also found that whale accounts are active during that bear market and many of them are accumulating. He wrote,
Existing whales have increased their position by more than 4% in the past 6 months. ($550M USD). That rivals the roughly $600M in new capital influx that Bitcoin was estimated to see last year.
There are a SIGNIFICANT number of new wallets in the top 10k who had their first transaction associated with fiat onramp exchanges that serve large scale customers (mostly Gemini, Kraken and Coinbase)
These new addresses often bought $100,000 — $250,000 worth of Ethereum, and they represent around 6% of the top 10,000 addresses. (Or ~$100M in new ETH purchases in the past 6 months)
Another key point that he made was that Ether is very active in terms of circulation. He found 16.2M Ether was in circulated through a payment processor, payment gateway or smart contract in the past 90 days. This indicates that the narrative of "ETH is money" is somewhat true and ETH is heavily used.
Conclusion
I am very bullish on ETH based on both technical analysis and the fundamentals. The interesting thing about ETH is that its fundamentals are rarely talked about and that makes it underrated.
The Bitcoin rewards halving is likely to bring in fresh interest from those who had left the crypto market or those who are totally new. When they look at Bitcoin, they will likely also take notice of the second largest cryptocurrency, ETH.
Once again, I am just sharing my thought process and please do not take it as financial advice. Due diligence and research are still required for your own investment. If you like this content, stay tune for my analysis on HIVE next. It will be a continuation of my previous analysis which went terribly wrong 😅.
Do drop me some comments and let me know if you want me to analyze some other crypto projects.
Oh and just a reminder, less than 6 days to go now...
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