ETH Price Evolution

 Introduction 

This blog post is going to make an assessment on the Ethereum  price and attempt to predict how the ETH is going to perform the next three months, and when to exit. Since mid October 2020 there has been an insane accumulation of Bitcoin from Whales and since ETH has a 93% correlation with BTC, we can safely assume that ETH is going to go to the moon too. It does worth mentioning also that ETH the last year has outperformed BTC and it seems to have a certain type of "price decoupling".  Which translates to an ETH movement that is going to ignore the indecisiveness of BTC and move to an ATH. 

This is the BTC/ETH ratio daily chart created using Tradingview [7]:

Ethereum's out-performance looks set to endure also in the near term, as the BTC/ETH ratio breaks to its lowest levels since August of 2018. That being said, both cryptocurrencies seem poised to move higher in the coming weeks, as bullish technical setups take shape on multiple time-frames. 

Article key points:

• ETH EIP-1559 burning mechanism
• ETH as a DeFi reserve
• ETH trend
• ETH price suppression

ETH Reserve 

Based on coin-telegraph [1], analysts predict ETH may soon hit a new all-time high after ETH reserves on centralized exchanges fell by 27% in two days. The acceleration of ETH being taken off exchanges was highlighted by Nuggets News [2] Alex Saunders, who noted a 10% drop in Ether reserves on centralized platforms on Jan.14 — from 11 million to 10 million over 24 hours. “Exchanges will run out of ETH in 10 days at current rate,” he predicted.

This can also been seen on the Cryptoquant charts [3]:

In the chart above we see a rapid drop on Jan 23 and the then slower movements to further down. This is a strong indicator of a Storage of Value (SoV) asset. Long term HODLERs are going to benefit from just holding ETH.

ETH The Reserve Of DeFi

As far as blockchain is concerned, investors believe that ETH has a value storage function [4]. Below we can see the total ETH 2.0 value staked so far.

This can also been seen on the Cryptoquant charts [3]:

ETH is the mother of DeFi and the equivalent of derivatives in the traditional market. Simplistically speaking without ETH there is no DeFi. If we compare DeFi with the current traditional derivatives market, we can see the future of ETH price.

But what is a derivative?

A derivative is a financial security with a value that is reliant upon or derived from, an underlying asset or group of assets—a benchmark. The derivative itself is a contract between two or more parties, and the derivative derives its price from fluctuations in the underlying asset. [8]

Why ETH is a derivative?

ETH allows the cooperation of multiple different contracts (e.g. through smart contract interfacing). By assuming that a smart contract emulates the behavior of a single asset e.g., gold or silver etc. We can safely deduce that on ETH we can build/emulate derivatives, simply by combining smart contracts e.g. two smart contracts that emulate gold and silver etc. 

This is particularly easy with the following three properties:

• Chain interoperability e.g. cross chain data exchanges
• Chain oracles e.g. see Chain-link technology 
• Web 2.0 connectivity e.g., see API3 technology

The current derivative market is, in a word, gigantic—often estimated at over $1 quadrillion on the high end. Largely because there are numerous derivatives in existence, available on virtually every possible type of investment asset, including equities, commodities, bonds, and currency. Some market analysts even place the size of the market at more than 10 times that of the total world gross domestic product (GDP). However, other researchers challenge these estimates, arguing the size of the derivatives market is vastly overstated [9]. For a visualization of the market caps in different assets see [6].

Is there any downside in derivatives?

In the traditional market, derivatives are difficult to value because they are based on the price of another asset. The risks for OTC derivatives include counter-party risks that are difficult to predict or value as well. Most derivatives are also sensitive to changes in the amount of time to expiration, the cost of holding the underlying asset, and interest rates. These variables make it difficult to perfectly match the value of a derivative with the underlying asset [8].

Why are we concerned about the derivatives behavior in traditional markets?

Because with derivatives someone can create financial bubbles. The real cause of the 2008 financial crisis was the proliferation of unregulated derivatives during that time. A good example of a derivative that caused the financial crisis is a mortgage-backed security [10]. ETH derivatives, depending the regulatory framework that is going to be created (it is assumed that the regulatory framework is going to be created in the near future) might become dangerous on the distant future.  

Is this something I should be concerned?

No, 1st it is too early and 2nd this is related mostly to layer 2 technologies, that seat on top of ETH e.g. Matic Network. 

ETH Is Burning

The EIP-1559 standard aims to reduce gas costs on the Ethereum network, and is expected to be released in the summer of 2021 [11]. EIP-1559 is a transaction pricing mechanism that includes fixed-per-block network fee that is burned and dynamically expands/contracts block sizes to deal with transient congestion [12]. ETH1.0 historically priced transaction fees using a simple auction mechanism, where users send transactions with bids ("gasprices") and miners choose transactions with the highest bids, and transactions that get included pay the bid that they specify. A mechanism similar to the one BTC is using. Simplistically speaking ETH is becoming deflationary..............

The transition to Ethereum 2.0’s staking mechanism is set to reduce the inflation rate of ETH to 0.5%-2.0%, putting it in the same company as BTC and gold in terms of supply inflation. 

ETH Is On An Uptrend

Trend is your friend, follow the trend and enjoy the ride. ETH hit ATH today (03/02/2021) and the shapes created by the price chart show that the same trend is going to continue.

This can also been seen on the Tradingview charts (daily chart):

ETH Is Suppressed By Whales

For visualizing the buy and sell walls from the Whales, we are going to use Tradinglight. Tradinglight is a heat-map visualization tool, that loads Tradingview, using live data, indicator scripting, support for all major crypto exchanges. When using TradingLite heat-map, we can quickly grasp which price levels are trusted by the market.

Tradinglight charts (6hrs chart in Bitfinix):

From the diagram above we can see from the Bifinix order book that, there are multiple sell walls on 800 to 1200 dollars. Which means that there is a strong desire to suppress the ETH price and buy the deeps. On the top there is a sell wall on 1500 dollars.

Below we can see from cryptometer that ETH is heavily suppressed by the big bad Whales:

 Note: The amount used to suppress ETH since Dec 2020 increased by 70%.  

Conclusion 

ETH is going to outperform BTC and hit at least 2000 dollars the next 2 weeks to 4 weeks. After ATH is achieved I am expecting a parabolic move similar to the one BTC went through. I would not be surprised if we could see a 5000 dollar price in 3 months from now.  

References 

• cointelegraph [1]
• NuggetsNews/videos [2]
• Cryptoquant [3]
• tokeninsight.medium.com [4]
• decrypt.co [5]
• visualcapitalist [6]
• dailyfx [7]
• investopedia [8]
• investopedia [9]
• thebalance [10]
• hebergementwebs [11]
• github [12]