Its been quite some time since we've taken a look at Ethereum, but it feels like we're due for another long, hard examination.
Bullish Despite the Setbacks
There's been a considerable amount of attention placed on Bitcoin lately (especially as it nears its ATH), but by every measure, Ethereum has vastly outperformed Bitcoin this year (by quite a margin).
Let's take a look at Ethereum's price appreciation since the global market crash that occurred back around March 12th/13th, 2020.
As we can see above, Ethereum is up a whopping +400% since that time, which is considerably more than what Bitcoin has gained.
Of course, much of these gains have been due to the accelerated investment in Ethereum created (somewhat artificially) by:
Individuals purchasing Ethereum by the droves in order to become eligible for staking (with the minimum requirement for eligibility being 32 Ethereum coins; currently worth $14.7k at the time of writing).
DeFi, in general, as it is has led to a restriction in the free flowing supply of Ethereum (more on this a bit later). Additionally certain DeFi protocols (and combinations of them), have incentivized individuals to refrain from selling Ethereum on the open market, instead opting to reap the perceived benefits of staking it or swapping it out.
MakerDAO Has Been a Huge Catalyst
We explained how MakerDAO works in greater depth a bit earlier this year, but it wouldn't hurt to give another basic overview for those that are curious.
MakerDAO in a Nutshell
Essentially, MakerDAO is a protocol that allows users to collateralize their assets in return for 'DAI' (which are like a stablecoin of sorts; its value is meant to be $1 - but for various reasons it is rarely at this mark exactly).
Essentially, the pipeline works as follows:
- Take X amount of Ethereum and swap that out for 'Wrapped Ethereum'
- Wrapped Ethereum is the synthetic derivative version of Ethereum in an ERC20 form. This is necessary because Ethereum itself does not have ERC20 compatibility (in other words, there is no way for one to trade $ETH 1:1 with another ERC20 token despite the fact that these tokens are borne from Ethereum itself; this sounds dumb but if you think about it, there's no conceptually safe or intelligent way for this to be imbued into the protocol)
- Once Wrapped Ethereum is obtained (could be from one of any # of sources), it can be collateralized on the MakerDAO protocol.
- After being collateralized, users are able to borrow $DAI against said collateral. The concept of $DAI does not work unless there are enough $DAI left to equal the value of staked $ETH.
Quick note about #4 in that list above is that Ethereum's value is calculated on the basis of the value of $DAI at that time on the markets (which is supposedly piped into the protocol via 'oracles' such as the ones provided by Chainlink ; oracles = glorified API data retrievers - literally a JSON parser if we're going to be honest here).
Continuing further though, thie way that MakerDAO works makes it so that its a natural market mechanism for placing a leveraged long bet on Ethereum.
So if you think / thought that Ethereum was going to increase in value, then you would want to collateralize it and then borrow $DAI against that collateral, because the only requirement that you really have beyond that point is to return the equivalent amount of $DAI back (or your position will be liquidated if the price depreciates to the point where your total collateral can no longer cover the outstanding loan of $DAI that you have out).
There were plenty of other DeFi projects that only heightened those incentives, creating an even bigger vacuum to suck in Ethereum (thus decreasing the available supply while simultaneously raising the demand).
This is probably why we see that the biggest period of growth for Ethereum was in the month of July (when all of DeFi was going buckwild).
Let's see below:
That month alone, we saw $ETH increase by +55% in value (more than it has any other month this year).
In the time since, $ETH has only appreciated by +20#%, which is actually pretty lukewarm compared to most of the remaining T10 (consider how well that Bitcoin has done in the time since; not to mention Litecoin as well, which has picked up some crazy bull action as of late).
This is meaningful, because it tells us that Ethereum is not moving on the same cycle that Bitcoin is (i.e., Bitcoin is moving in line with tech stocks currently, showing that its being valued by the larger markets [ones outside of crypto] as another tech investment).
This was evidenced during the global market crash in the beginning of March that wiped away almost 70% of $ETH's total value (see below):
Steady Trend Since Then
Since that point, however, Ethereum has posted impressive gains.
Perhaps more impressive (and reassuring for traders that are fans of smart asset acquisitions), is the fact that there is a strong underlying support uptrend for Ethereum that has been tested a few times and remained steadfast throughout most of the year.
Above we can see there were multiple touches of the underlying uptrend support.
Very, Very Bullish Chart Formation Forming For Ethereum
After taking a closer look at the chart, zooming out, and thinking for a second - the pattern suddenly reared its head to be glimpsed in all of its awesomeness.
What you see above, is known as a flat top chart pattern formation (otherwise known as an 'ascending triangle')
If you're a bull, then this is something to celebrate about because the pattern draw on the chart above dictates that there is extreme bullish price action on the way for Ethereum, just so long as it is able to break up past that overhead horizontal resistance that its at currently.
There are three major types of major triangle patterns that form on charts from time to time, and each comes with its own accompanying price forecast.
Below is a chart I managed to scrounge up that gives an accurate look at what we should expect for a flat top formation:
(the one in the middle = flat top / ascending triangle)
If you're looking for a graphic that explicitly isolates the facets of an ascending triangle, see below:
If we put what we see above in perspective of the chart itself, then we end up with the following:
Balance of Power RSI
The Balance of Power RSI shows a clear trend of increasing buy pressure underneath the price
Below is a curious observation that I made while examining the BoP RSI:
Librehash Reversion Ribbon
Been a little while since we've pulled out this indicator (because its more of a lagging indicator, which we would want in a sideways market and I think I also tend to favor momentum indicators in general).
But let's check out the Librehash Reversion Ribbon (exposed below):
As we can see, there's a wealth of information that we can glean from the chart using the Librehash Reversion Ribbon V2.
In specific, we now know that:
- Ethereum appears to be headed into a brief consolidation phase (i.e., trading sideways for some amount of time, which makes sense given the market craziness and the lack of length in the most recent candles that have popped up on the daily)
- Ethereum is still bullish overall (and signified as being in a bull trend) ; we can tell this because the ribbon is still well above the Histogram (that and other facets of the Reversion Ribbon are not much different than how you'd evaluate the MACD, for instance).
- There is no telling whether this phase only lasts for a couple of periods before reversing course and finishing up or whether this is indicative of a longer-ish period of consolidation coming up.
- From what we learned during the last bullrun, Ethereum has the ability to function entirely decoupled from Bitcoin (remember, the blow off top for Bitcoin had already occurred at the time that Ethereum started surging toward its ATH in the $1300's)
There's obviously more that we could have gotten into here, but I think the main points that we needed to cover were done so effectively here.
Traders should just take away that:
A) Ethereum appears to be okay for the time being
B) There is nothing to suggest that Ethereum will not continue its price trajectory, but there will probably be a period of consolidation in the immediate future that could be over within the next 3-4 days.