Ethereum (ETH) is a distributed ledger and decentralized computing platform with smart contract capabilities. The crypto asset is currently second on the BraveNewCoin market cap table, with a market cap of US$53.86 billion and US$3.53 billion in trade volume over the past 24 hours.
The ETH project was proposed by Vitalik Buterin in 2013. Other co-founders include Anthony Di Iorio, Charles Hoskinson, Mihai Alisie, Amir Chetrit, Joseph Lubin, Gavin Wood, and Jeffrey Wilcke. An Initial Coin Offering (ICO) followed in 2014. The ICO raised nearly US$16 million, with each token selling for US$0.31. The ETH ICO would eventually become one of the most profitable in history.
The network mainnet went live in July 2015 with 72 million pre-mined coins, which currently accounts for 65% of the circulating supply. On Christmas day 2019, Wilcke sent 92,000 ETH, US$11.5 million, to the Kraken exchange, presumably to sell. ETH was launched with no vesting schedule or lock-in period for the pre-mined coins.
Thus far, protocol upgrade milestones have included; Olympic in May 2015, Frontier in July 2015, Homestead in March 2016, Metropolis Part 1: Byzantium in October 2017, Metropolis Part 2: Constantinople in February 2019, Istanbul in December 2019, and Muir Glacier in January 2020.
Ethereum is upgraded through a series of Ethereum Improvement Protocols (EIPs), which are then bundled into each hard fork. The Github repository for EIPs has been extremely active since January 2019.
Source: Github - EIPs
In total, almost 1,000 developers have contributed nearly 30,000 commits to the ETH project in the past year, across 241 Github repos. Most of the commits over the past year have occurred in the Solidity repo, the programming language used to write smart contracts on Ethereum.
Source: Github - solidity
An adjacent protocol overhaul, Serenity, is currently in development and includes a full
rewrite and redesign, which will result in Ethereum 2.0. Phase zero of the herculean task began in November, with 100,000 ETH currently being staked. Both versions of ETH will exist concurrently for some time before a migration is completed. Danny Ryan, Justin Drake, and Vitalik Buterin have the most commits in the ETH 2.0 repo.
Overall, ETH related repos have had more commits than any other crypto project over the past year. In December, Buterin released an alternative proposal for merging ETH 1.0 to ETH 2.0 on an accelerated schedule and less re-architecturing. Buterin also explained earlier this year that the “initial deployment of ethereum's layer 2 scaling strategy has basically succeeded” and needs further refinement and deployment.
ETH 2.0 includes Sharding and Casper, which will drastically alter the network. Sharding refers to a scaling solution for horizontally partitioning data within a database. The full implementation of Casper, slated for release in 2022, will remove Proof of Work (PoW) from the network and replace it with Proof of Stake (PoS), with a block reward at 0.22 ETH/block. Currently, there are no plans to cap the total amount of ETH created.
Source: Hsiao-Wei Wang
While the network is still PoW based, Programmatic PoW (EIP 1057) was also being discussed as a poison pill to reduce ASIC mining on a network by increasing the efficiency of GPU and FPGA mining. ProgPoW is only likely to be implemented if future hash rate increases are driven by ASICs. Bitmain, Innosilicon, and PandaMiner all have at least three ASIC miners available for the EtHash algorithm, while a new ASIC mining chip from a fourth mining company, Linzhi, was released in October 2019.
If implemented, EIP 1057 will make all current Ethash ASICs unable to mine the chain. Those using Ethash ASICs may choose to continue mining the pre-fork chain. Another possibility is that ASICs will be used to mine the Ethereum Classic (ETC) chain, which also uses the Ethash algorithm. In any case, the goal of decreasing ASIC use on the ETH chain will be successful, although likely temporary.
At US$0.04/KWh, all of the currently available Ethash ASICs are profitable. Mining profitability has increased dramatically since March, recently reaching a two-year high. However, if ETH prices or fees fall dramatically, the hash rate will likely decline.
Hash rate (solid line, chart below) has steadily increased from January lows. Difficulty (dashed line, chart below) had risen steadily since April 2019, becoming disconnected from the hash rate in October. This rise in difficulty despite a fall in hash rate is coded into Ethereum and known as an Ice Age, or difficulty bomb, which has activated twice before on Ethereum, once in 2017 and once in late 2018.
The most recent Ice Age was meant to serve as a transition from ETH 1.0 to ETH 2.0 and phase out PoW mining completely. However, because ETH 2.0 was not ready for deployment, the Ice Age was pushed back another four million blocks, to block 13.2 million, via a hard fork on January 2nd.
Average block times are currently 13 seconds with blocks per day (line, chart below) currently at an all-time high. There are approximately 112.6 million ETH in circulation with inflation per annum currently at 4.35% (fill, chart below), which sits near an all-time low. Despite record fast block times, pending transactions have been ranging above 150,000 over the past few weeks, with only a few smart contracts accounting for most of the transactions.
Tether (USDT) was originally issued on the OMNI chain in 2015, but has been aggressively swapped to an ERC-20 token over the past year. In total, nearly 65% of all circulating USDT is now on the ETH chain. ERC-20 transfers are both cheaper and faster than OMNI transfers, thus many exchanges have added the option for ERC-20 USDT in recent months.
ERC-20 USDT transactions per day and average transaction values have quickly surpassed OMNI transactions per day and average transaction values. ERC-20 USDT transactions per day are now 70x OMNI USDT transactions per day. ERC-20 transfers also account for 23% of all daily transactions on ETH currently.
According to etherscan, the Ethereum network currently has 3,985 active network nodes, 31% of which are located in the United States and nearly 68% of these nodes are running through Cloud hosting services. Due to the somewhat cumbersome hardware and time requirements of running a node, many of these nodes are run by Infura, or similar node servicers, who provide access to the network for developers. These services have become increasingly important as the blockchain continues to grow. In mid-November, Infura reported an outage which drastically reduced transactions on the ETH blockchain.
Nodes have several sync modes, with fast sync requiring approximately 558 GB of storage and a full archival node requiring over 5.64 TB of storage. A full node stores a snapshot of the entire network in every contract at every point in time. In contrast, a Bitcoin full node requires just over 350 GB of storage.
The average number of on-chain transactions per week (line, chart below) is currently 1.10 million, down from the mid-August high of 1.23 million. This remains up from a multi-year low of 430,000 in February 2019, but slightly down from the record high of 1.24 million on January 9th, 2018.
Average weekly transaction fees (fill, chart below) are now US$1.60, down from the US$4.44 all-time high. In June, fees were heavily skewed thanks to two transactions that sent $2.6 million each in fees, likely related to a gas extortion attempt or white-hat hack of a Ponzi scheme. However, fees on ETH had been rising significantly over the past two months even before these two transactions were sent and have continued to rise since early June.
In September 2019 and June 2020, miners voted to increase gas limits by 25% (bottom chart, below), which has alleviated some fee pressure. Gas limits are once again near-maximum capacity, increasing the possibility of further increases in the Gas ceiling.
The 30-day network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) is currently 29 and slowly rising. A clear uptrend in NVT 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. An NVT holding below 30 would likely signify bullish market conditions, as was the case from April 2017 to May 2018. NVT does factor in most DeFi-related transactions.
Monthly active addresses (MAAs) are currently nearing 600,000 (fill, chart below). MAAs are up from a yearly low of 192,000 in February, but slightly down from an all-time high of nearly 610,000 in January 2018. Overall, MAAs remain above levels seen throughout 2017 and earlier. Unique addresses continue to grow at a rapid rate and are just over 119 million (not shown). However, addresses can only be added to the network, and are never deleted.
Transparent ICO treasury balances have reduced significantly from 2018 to the present, both in USD value and in ETH quantity. May 2019 saw outflows totaling over 327,000 ETH, the largest of the entire year. In 2019, ICOs withdrew 1.24 million ETH and continued to hold just under one million ETH.
Since January 2020, ICOs have withdrawn over one million ETH with Aragon, Kyber, Monetha, Mysterium, SingularDTV, Gnosis, and Status all withdrawing at least 10,000 ETH from their respective treasuries in January alone. Request (REQ) also withdrew 15,000 ETH earlier this year. DigixDAO stakeholders also approved a measure to return all treasury funds to investors, which occurred in Q2 this year.
Over the past few months, Gnosis has spent over 100,000 ETH and Monolith has spent 44,000 ETH. The three largest remaining treasuries are Golem, Polkadot, and iExec RLC at 329,000 ETH, 306,000 ETH, and 100,000 ETH, respectively. Polkadot’s funds were frozen in November 2017 when a bug was executed which deleted a code library for the Parity multi-sig wallet.
The top Ethereum based dapps over the past month, ranked by volume, are led by DeFi and exchange dapps. These ETH dapps also dominate volume metrics when compared to other chains, including Tron and EOS. Uniswap also has the most reported users over the past month at 284,000.
Overall, ETH has a considerably lower number of users and transactions compared to other dapp platforms like EOS (EOS) and Tronix (TRX), both of which have no transaction fees. In February 2019, Twitter user Kevin Rooke pointed out that of the 1,375 ETH dapps, 86% had zero users and zero transaction volume. There are currently 2,052 dapps listed on dappradar, 90% of which have zero reported users or transaction volume in the past month.
The Decentralized Finance movement, or DeFi, has increasingly gained in popularity with the total ETH held in DeFi currently at 7.7 million ETH or US$3.68 billion. Lending and so-called “yield-farming” dapps, like Compound, have seen the biggest influx of money as their products began to provide a return for users. The stablecoin exosystem MakerDAO currently holds around 17% of all ETH in the DeFi ecosystem.
Several DeFi incidents over the past few years highlight the need for robust DeFi infrastructure and testing. bZx, the fifteenth-largest DeFi protocol with over US$2.5 million worth of funds locked currently, lost US$350,000 and US$645,000 worth of ETH in two separate exploits related to flash loans and price oracle manipulation. To remedy the exploit, bZk absorbed the losses and directed future cash flows to an insurance fund until the outstanding debt is paid. The protocol had a similar incident earlier this month resulting in a US$1 million loss.
Maker DAO also experienced a US$4.5 million loss this year following a price feed delay. Maker DAO has since added USDC as collateral and MKR governance tokens were diluted and auctioned to raise funds to cover for the shortage. The loss has since been fully paid.
Other protocols have also been hit with flash loans attacks over the past few weeks include: a $25 million loss in Harvest, a US$7 million loss in Value DeFi, a US$8 million loss in OriginProtocol, a US$3.3 million loss in CheeseBank, and a US$2 million loss Akropolis.
Worldwide Google Trends data for the term "Ethereum" spiked in July 2019 and February 2020, which matched a swift increase in price. Worldwide Google Trends data for the terms “ Defi Crypto” and “Yield Farming” have decreased from highs in recent weeks.
Overall, searches for “Ethereum” remain down significantly from early 2018. A slow rise in searches for "Ethereum" preceded both highs in June 2017 and January 2018, likely signaling interest from new market participants at that time.
A 2015 study found a strong correlation between the Google Trends data and BTC price, while a May 2017 study concluded that when the U.S. Google "Bitcoin" searches increased dramatically, BTC price dropped.
The current ETH/USD spot price is down 66% from the all-time high set in January 2018 and up 258% from the March 2020 lows. Most crypto assets have held an 80%+ correlation with one another from Q4 2019 to Q2 2020. Over the past few months, these correlations have decreased significantly with ETH outperforming most other assets, except for ADA and LINK. These correlations tend to decrease in a bullish market and increase in a bearish market. Since the beginning of Q4, BTC and ETH have de-coupled significantly
As a potential bullish trend resumes, roadmaps for future market movements can be found on high timeframes using Exponential Moving Averages, Volume Profile Visible Range, Pitchforks, Ichimoku Cloud, and divergences. Further background information on the technical analysis discussed below can be found here.
On the daily chart for the ETH/USD pair, the 50-day Exponential Moving Average (EMA) and 200-day EMA Golden Cross on February 11th was quickly followed by a bearish Death Cross on March 19th. On May 6th, these key EMAs re-crossed bullish, suggesting the 200-day EMA at US$340 will now act as support.
Based on the Volume Profile Visible Range (VPVR - horizontal bars, chart below), the current spot price now sits above both the US$300 and US$467 volume nodes. Yearly Pivots, or mathematical support and resistance based on the highs and lows of the previous year, also sit at US$290, US$460, and US$560. Additionally, there are no bullish or bearish divergences on volume or RSI at this time.
The long/short open interest on Bitfinex (top panel, chart below) is currently 96% long with long positions continuing to push new all-time highs over the past few weeks. A significant price movement downwards will result in an exaggerated move further, as the long positions will continue to unwind. This is known as a “long squeeze.” However, Bitfinex long/short ratios have historically had little bearing on Ethereum price action.
This market has also potentially established a new bullish Pitchfork (PF). Once the trend is defined, the spot price will continually attempt to return to the median line (yellow), currently at US$365. A bullish PF is invalidated once the spot price falls below the lowest support, currently at US$150. The uppermost resistance currently sits at US$880.
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.
Daily Cloud metrics 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 above the Cloud and above the current spot price. The trend will remain bullish so long as price remains above the Cloud.
Lastly, on the two-day ETH/BTC chart, trend indicators are neutral with price just below the 50-period and 200-period EMAs, as well as above the Cloud. The spot price is now holding near the 0.034 BTC yearly pivot with a resolved bearish divergence on volume and RSI. Strong VPVR support sits in the 0.03 BTC zone. Further upside will likely find resistance at the VPVR and psychological level of 0.05 BTC. ETH/BTC open interest on Bitfinex is 99% long (not shown).
On-chain fundamentals including hash rate, transactions per day, and daily active addresses, have increased since January, and are now up significantly from year-end 2019 lows. The ProgPoW consensus algorithm change is not likely coming this year, a change that would drastically alter the current Ethash mining landscape. Although ETH 2.0 is still in the early stages of development and release, the new protocol is actively being discussed, debated, and coded, with a phase zero release slated for as early as November this year.
The quantity of ETH locked in DeFi apps has increased significantly over the past year as ETH held by ICO treasuries continued to decrease, potentially providing a new avenue to decrease the circulating ETH supply. New ICOs on the ETH chain have trended toward zero throughout 2019 and early 2020. As DeFi usage increases, on-chain metrics need to be retooled to better represent and include smart contract activity, such as Dai and Sai transfers. NVT, an inverse metric of economic utility, is currently decreasing slightly, despite significant DeFi activity.
Technicals are bullish for the ETH/USD pair based on current trend metrics, as the spot price is currently above both the 200-day EMA and the daily Cloud. Over the next few months, a target of US$750 is likely based on VPVR, yearly pivots, and a newly established bullish pitchfork.
Technicals for the ETH/BTC pair are neutral based on trend metrics, as the spot price is currently just below the 400-day EMA and above the two-day Cloud. In the near term, the spot price will need to cleanly breach resistance and consolidate near the 0.03 BTC level. Overall, this may lead to the first sign of bullish continuation for the pair since ICOs peaked in mid-2018.