Fresh 9-month price lows

Ethereum has suffered a precipitous price drop over the past 24 hours of trading, dropping a total of 10% (at the time of writing). Ethereum is currently trading below $300 for the first time all year, at $289 per token, the lowest price the market has seen in 9 months. This comes after a further price drop totalling 28.86% over the past 7 trading days.

The price drop has created a stir throughout the entire cryptocurrency industry, as investors begin to panic about how much further it could possibly go.

What is Ethereum

Ethereum was created by the genius mind of Vitalik Buterin in July 2015 and has been commonly described as the decentralised operating system for blockchain. The Ethereum network allows developers to come and develop decentralised apps (Dapps) that can be run directly on the Ethereum blockchain.

Ethereum has recently celebrated its 3rd birthday on July 30th but over the course of its short lifespan, adoption for the network has grown significantly as the cryptocurrency ranks in 2nd place in terms of overall market cap behind Bitcoin. There are many projects that have elected to run on the Ethereum network, creating a large ecosystem powered by Ethereum,

Despite its achievements, Ethereum still has a long way to becoming what it intends to be. Over the course of the past year, concerns have been raised regarding Ethereum’s (and Bitcoins) scalability. Ethereum can currently only process between 20-25 transactions per second (TPS) which is far from the required number to power a large number of users. However, many promising proposals have been put forward as developers have consistently been working to improve Ethereum’s throughput capability.

So what is going on with the price?

Ethereum is currently ranked at 2nd place in terms of the overall market cap across the entire industry with a total market cap value of $29.37 billion. In the short space of just over 3 months, the market cap has fallen by a significant $52.87 billion from the market cap high of $82.74 billion seen on May 6 2018, as evidenced in the graph below. The 36-month-old cryptocurrency has dropped a total of 33% over the past 30 trading days and is a significant 80% from it’s all-time high.

Let us continue to analyse price action for Ethereum over the long term.

 

Price Analysis

ETH/USD – LONG TERM – DAILY CHART
https://www.tradingview.com/x/tXg8j9KA/

The initial bull run

Analysing price action from the long-term perspective above, we can see that Ethereum had experienced a significant bullish run toward the end of 2017 when price action started from a low of $275.74 on November 2, 2017, and extended to an all-time high of $1424.30 on January 18 2018. This was a price increase totalling 400% from low to high.

What happened after?

After placing the all-time-high, price action began to rapidly decline, originally finding support at the .618 Fibonacci Retracement level priced at $721.72 in February 2018. This Fibonacci Retracement is measured from the entire bullish run outlined above.

During March 2018, price action went on to penetrate below the .618 Fibonacci Retracement level and continued to fall until finding support slightly below the .886 Fibonacci Retracement level priced at $412.

What happened to the large consolidation pattern?

Price action went on to make another rally at this price level, reaching a high over $800 in May 2018. We can see that, at this moment in time, the market had been forming a symmetrical triangle, bound between the downward falling trend line (drawn in black) and a, now broken, upward sloping trend line (drawn as a dotted grey line). We can see that price action had remained bound between within this technical consolidation pattern all the way up until early August, where price action proceeded to break below the lower boundary of the triangle.

The break of this consolidation pattern, from a technical analysis viewpoint, confirmed that Ethereum had entered into a long-term downtrend, most of us had already accepted this fact before-hand.

Let us continue to analyse price action a little closer over the more recent period.

ETH/USD – SHORT TERM – DAILY CHART
https://www.tradingview.com/x/SBZYTZ0m/

The second bull run

Analysing the market from a shorter time frame, we can see that Ethereum had experienced a smaller bullish run throughout April as price action started from a low of $358 on April 1, 2018, and extended to a high of $838 placed on May 6 2018. This was still a very respectable price increase totalling 135% from low to high.

What happened after?

Price action went on to roll over after hitting the upper boundary of the, now resolved, symmetrical triangle. Price action continued to fall until finding support at the long term .886 Fibonacci Retracement level again, priced at $412 in June 2018. We had hoped that this Fibonacci level would provide enough support to hold up the market but we were let down as price action plummeted below the level as August 2018 began trading.

Where are we now?

The market continued to fall through a series of downside Fibonacci Extension levels throughout the first two trading weeks of August, eventually pushing price action below the $300 handle today. We can see that price action is rapidly approaching the price level at which the initial bullish run started from last November at $275. This price level contains a confluence of two different downside 1.618 Fibonacci Extension levels, one short term and one slightly longer term, as well as the strong support provided by the November low.

Where can we go from here?

If price action continues on this precipitous decline and pushes the market below our support range highlighted between $280-$271, we expect further support to be located at another downside 1.414 Fibonacci Extension level priced at $226.98.

What if the bulls can regain control?

Alternatively, if the bulls can regain some form of control within the market and keep price action above our support range, we expect immediate resistance to be located at the short term downside 1.414 Fibonacci Extension level priced at $317. Further resistance is expected at Aprils price low at $358 followed by the downward sloping trend line. After such a disastrous decline, we expect any meaningful recovery to, unfortunately, be slow and painful.

What are the technical indicators reading?

The technical indicators are heavily favouring the bears at this current moment in time. The RSI is currently trading in extreme oversold conditions well below the 20 handle. In fact, the RSI has not printed a reading this low for over 4 months. For a sign that the bearish pressure is beginning to fade, we will look for the RSI to make its way back toward the 50 handle.

To add further to the bear’s favour, the moving averages are all trading in an extremely bearish pattern as the 7 day EMA (blue moving average) trades below the 21 day EMA (purple moving average) which trades below the 100 day SMA (black moving average).

 

Conclusion

Despite this market turmoil, as investors are panicking due to the steep decline, HODLers keep on holding onto Ethereum. The cryptocurrency industry has long been known as a very risky market which is still in its infancy. Those that invested in the belief of the future of the technology can still sleep comfortably knowing that development is still progressing at the same pace as before price dropped below $300.

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