NEO Price Analysis – On-chain metrics increasing

By August 12, 2020DApps
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NEO (NEO) is a decentralized smart contract network which is currently 20th on the BraveNewCoin market cap table. NEO is down 93% from the record high established in January 2018, with a current market cap of US$982 million, and a total of US$408 million in trade volume over the past 24 hours.

A quick comparison between coins using similar consensus mechanisms shows that NEO is in the middle of the pack for most metrics shown below. NEO leads in total daily transaction volume and is last in Git commits over the past year. Reliable on-chain transaction volume data or active addresses for EOS (EOS) could not be obtained.

NEO Price Analysis 12 Aug 2020 (1)

The NEO project was previously known as Antshares and founded by Da Hongfei and Erik Zhang. The project was hailed as the “Ethereum of China.” An Initial Coin Offering (ICO) was run from August 8th to September 7th, 2016, which raised US$97,517 and 8,169 BTC. The ICO created 100 million NEO tokens, with 50% split between the crowdfund participants and 50% distributed to the NEO Council (now the NEO Foundation).

The Foundation released a financial report in December 2019 revealing holdings of US$378 million, including; NEO assets, non-NEO assets, and fund assets. NEO assets accounted for 42.8 million NEO tokens, currently US$582 million, which is just under 45% of the assets total supply. The non-NEO assets held by the Foundation include BTC, ONT, ONG, USD, and CNY, accounting for US$41.4 million. Fund assets include 4,567 BTC, which is currently equivalent to US$51.8million.

In March 2020, the Foundation sold 1,660,865 NEO tokens to cover the annual expenditure, including; “ to continuously support NEO’s technological development, ecosystem growth, community expansion and the normal operations of the foundation and related organizations.”

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NEO uses Delegated Byzantine Fault Tolerant (dBFT) for consensus, which yields 15-20 second block times. The network nodes are separated into two categories: consensus nodes and user nodes. There are currently seven consensus nodes, five of which are run by the NEO Foundation. The Foundation has planned to decentralize these nodes for over a year with no further progress.

The nodes are delegated by the network and earn a cryptocurrency called GAS through the block reward. Other nodes are simply users of the network. User nodes can earn GAS by holding NEO in a wallet, a process similar to staking. NEO GAS is used to interact with the network and is comparable to Ethereum GAS and EOS RAM.

On the development side, There are 19 NEO repositories on Github with 269 commits in the main repo over the past year, mostly from Erik Zhang and Shargon. The majority of projects in the crypto industry use the developer community of GitHub, where files are saved in folders called "repositories," or "repos," and changes to these files are recorded with "commits," which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity and interest.

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Source: Github

Last year, NEO revealed a roadmap of network upgrades leading into 2020, aimed at alleviating longstanding network issues and improving network efficiency. The upgrades are also designed to expand the smart contract ecosystem by reducing deployment and execution costs. The network upgraded to dBFT 2.0 in May 2019, which provided improved network stability and adjusted the network fee mechanism. An updated roadmap could not be obtained.

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Thus far, NEO smart contracts have had a tough start. In October 2018, smart contract audits found major code vulnerabilities in NEO NEP-5 contracts, which are most commonly used for ICOs on the NEO network. One flaw allowed users to artificially add to the total supply of a major NEO project, Deepbrain chain, by transferring their tokens to an unspecified address. In a bid to bolster the NEO ecosystem, Hongfei announced a US$100 million funding initiative in mid-May 2019, designed to help Decentralized Applications (dapps) and infrastructure development.

In contrast to other dApp platforms Ethereum (ETH), Tronix (TRX), EOS (EOS), Ontology (ONT), IOST (IOST), WAX (WAX) Waves (WAVES), LOOM (LOOM), and VeChain (VET), the NEO dApp ecosystem has struggled to bring any highly successful projects to market thus far. Funding on each platform for dapps shows that NEO is heavily lagging ETH, TRX, and EOS. However, the majority of dapps on any platform have very little user activity. The most popular across these various platforms are either gambling or exchange related.

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On-chain metrics reveal the number of NEO transactions per day (red line, chart below) have recently spiked to 100,000 after sitting at multi-year lows. Since October 2018, average transactions per day had ranged from 14,000 to 56,000. Average transaction values (green fill, chart below) have also declined since September 2017 and now sit in a multi-year range. Since April 2018, average transaction values have ranged from US$5,000 to US$50,000.

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Source: CoinMetrics

The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (red line, chart below) is currently 17 and rising. An NVT below 4.0 would likely indicate organic and sustained bull market conditions.

Inflection points in NVT can be leading indicators of a reversal in asset value. An uptrend in NVT often suggests a coin is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator, whereas a downtrend in NVT suggests the opposite.

Active and unique addresses are also important to consider, specifically when determining the fundamental value of the network based on Metcalfe's law. Monthly active addresses (MAAs) have declined since February 2018 (green fill, chart below), and now sit at a multi-year low. A consistent and sustained decrease in MAAs paints a bearish picture for any asset.

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Source: CoinMetrics

NEO exchange-traded volume has been led by Tether (USDT), Bitcoin (BTC), and Ethereum (ETH). NEO trading is available on Binance, Binance.US, Bitfinex, Bittrex, HitBTC, Huobi, and OKEx but the asset is not currently listed on Coinbase, Gemini, Kraken, or Poloniex. In February, Binance also launched a NEO/USDT perpetual futures product with up to 50x leverage. OKEx followed in March by adding NEO/USD and NEO/USDT perpetual swap products with up to 20x leverage. Huobi also recently launched a NEO futures product. Additionally, NEO hardware wallet functionality is available on Ledger but not Trezor.

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Technical Analysis

As NEO moves up with the rest of the market, a potential bullish reversal has emerged. Exponential moving averages, pivots, the Volume Profile of the Visible Range, divergences, and the Ichimoku Cloud can help highlight a future roadmap. Further background information on the technical analysis discussed below can be found here.

On the daily NEO/USD chart, the 50-day Exponential Moving Average (EMA) and 200-day EMA crossed bullish on June 4th. The previous Golden Cross also experienced muted bullish momentum after being denied at the US$20 level. Yearly pivot resistance sits at US$17 with yearly pivot support at US$12.

Since 2019, the pair has been held within a potential Wyckoffian accumulation with a markup period likely to begin above US$17. Based on the Volume Profile Visible Range (VPVR - horizontal bars, chart below), the current spot price now sits below the US$17 resistance node and above the US$7 - US$10 support node. There is no significant VPVR support below the current price. Additionally, there are no bullish or bearish divergences on RSI or volume at this time.

Long/short open interest on Bitfinex (top panel, chart below) is significantly net long, with longs increasing slightly over the past few weeks. A further significant price movement downwards will result in an exaggerated move as the long positions will begin to unwind. This is known as a "long squeeze."

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NEO Price Analysis 12 Aug 2020 (10)

Turning to the Ichimoku Cloud, four metrics are used to indicate if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.

Cloud metrics on the daily time frame with doubled settings (20/60/120/30), for more accurate signals, are bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above the current spot price. The trend will remain bullish so long as the spot price remains above the Cloud. Kijun support sits at US$12.42.

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Lastly, on the NEO/BTC pair, trend indicators are also slightly bullish. The spot price is above the 200-day EMA and the daily Cloud. Since 2018, NEO/BTC has only had two bullish Kumo breakouts and has mainly held below the 200-day EMA. VPVR (horizontal bars) suggests significant upside resistance from 0.0015 - 0.0030 BTC. There is no significant VPVR support below the current price. Yearly resistance pivot resistance and support now reside at 0.0016 BTC and 0.00044 BTC, respectively. Additionally, there are no bullish or bearish divergences on the volume of RSI at this time.

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Conclusion

As NEO continues a transition period towards NEO 3.0, on-chain metrics have begun to increase recently after declining over the past two years. Comparing NEO to other similar chains reveals weaknesses in almost every metric observed except for on-chain transaction volume, which remains elevated relative to other chains. In its current state, NEO appears to be much farther behind its smart contract competitors while maintaining high levels of centralization. However, the NEO project has plans to eventually implement decentralized consensus nodes and will likely continue to easily sustain itself due to the well-funded NEO Foundation.

Technicals for both the NEO/USD and NEO/BTC pairs suggest a nascent bullish trend. Both pairs sit above the 200-day EMA and daily Cloud. Strong upside resistance sits at US$17 and 0.0016 BTC for NEO/USD and NEO/BTC, respectively. A potential Wyckoffian accumulation pattern would bring a consolidation move around US$17 with the eventual breakout upward over the next few months.

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