Ethereum price predictions put us in a good place to understand key strike points: either to pick up the world’s second largest cryptocurrency on the cheap, or dump it.
Three months ago ETH was struggling to recover from a difficult 2018.
A week before Christmas it was trading at a paltry $83.
That level, just half of today’s price, now seems like a bargain.
At time of writing, ETH is sliding back towards the mid $150s, down from its 2019 high of $183.03 on April 8.
Still, 2018’s crushing bear market did those who are long Ethereum no favours at all. Cast your mind back to January 2018 when ETH was riding high at $1399.
Where did it all go wrong, and what’s next for ETH?
As I wrote earlier this month, the original Ethereum chain, Ethereum Classic, saw a huge uptick in anticipation of its Atlantis hard fork.
The price surged to 2019 highs, despite bad news from Thailand’s market regulator and the catastrophic security failing of a successful 51% attack.
Could ETH’s Constantinople hard fork hold the key to another upward spike?
The future certainly seems bright: Ethereum 2.0, as Coindesk explains here will be the biggest upgrade the cryptocurrency platform has ever seen. It’s a massive overhaul, an undertaking that will move Ethereum from Proof of Work to Proof of Stake.
But to know what’s coming next, first we have to look backwards.
Ethereum price split by hard fork
I spoke to @RektCapital, a UK-based trader and technical analyst, for insight into where the Ethereum price is going.
January 2019 saw ETH-USD trades becoming riskier by the day with Constantinople looming on the horizon.
The closer we got to a hard fork, the analyst said, the less likely it was that traders could hold strong ETH positions.
Well, hard forks usually come with a froth of excitement from the market.
Crucially, these irreversible software upgrades are priced in by forward-looking traders, weeks or sometimes months in advance.
It has already happened with Litecoin.
Litecoin’s upcoming August 2019 block reward reduction saw LTC drive upward to an $92.84 high – no doubt helped by the Bitcoin Bot Bump – now sliding back to the early $70s as momentum has stalled.
There is no earnings season, no half-yearly profits or annual reports for crypto investors to look at. Network upgrades are the closest thing we have to insider news and they are priced in accordingly.
Emotion is the key
There’s a lot we can learn from the fallout from Ethereum hard fork Constantinople.
And a lot of it comes down to emotion.
Constantinople made some big changes to Ethereum’s chain. They included:
- Delaying the difficulty bomb
- Increasing the speed of calculations in the Ethereum Virtual Machine
- Improving the efficiency of refund computations
- Adding state channels and compressing how smart contracts interact with one another
But the main one the market reacted to was:
- Dropping the block reward for miners from 3 ETH to 2 ETH
Conventional wisdom says that lower block rewards incite fewer people to mine Ethereum. This reduces supply and makes what you already have more valuable.
Cutting the block reward by 33% created a bullish signal which propelled buy orders of ETH.
“News of a hard fork or block reward reduction is always met with an emphatic reaction from buyers,” says RektCapital.
“The default position is to assume that block reward reductions will make it harder for miners to be rewarded and thus make the coin in question more valuable.”
While this may not be exactly correct, retail traders tend to move on basic bullish signals. A compelling narrative, however simplistic, is enough to drive up prices.
And it’s all down to an emotional reaction to news on the horizon.
FUD, FOMO and the psychology of buying
RektCapital is clear on how emotional reactions affect trading patterns.
He says: “Participants assume the coin in question is a bargain and tend to buy, in anticipation of a significant mark-up. This is an emotional process.”
Call it greed, or acquisitiveness, or whatever you like.
“The part of our brain that deals with emotional reinforcement – structures in the limbic system – prime us to think in terms of associations. We jump to attractive conclusions and make self-gratifying assumptions.”
Cold, hard logic tends to take a back seat in these calculations. You probably don’t know it’s happening, but your subconscious is in control.
“This is also what motivates people who suffer from the Fear Of Missing Out. They add fuel to the uptrend, prolonging it until the deadline for the block reward reduction looms large and market participants start to skim off their profits.”
Buy the hype, sell the news
Buying in anticipation of price appreciation, then selling as the deadline approaches is a phenomenon commonly referred to as ‘buy the hype, sell the news’.
It’s often the case that the ‘news is sold’ a few days or even sometimes a couple of weeks before the deadline.
But Ethereum postponed Constantinople several times. It was supposed to happen in October 2018, but the main dev team delayed it – responsibly as it turns out – to iron out security issues.
“This was a negative catalyst that whipped up Fear, Uncertainty and Doubt, which created a downward price spiral. Before the postponement, the technicals of Ethereum suggested its price rally may have been exhausted. The overlap of this stalling momentum and the fundamental postponement is curious, but this tends to be the case with such catalyst-driven events.
“Constantinople was the catalyst that helped end Ethereum’s bear market downtrend, offered a macro price reversal and potentially kickstarted the beginning of a new market cycle for ETH,” RektCapital said.
But we shouldn’t get too optimistic, at least in the short term.
“Given Ethereum’s price positioning around the time of the Constantinople announcement, I feel the fork’s role was significant in helping conclude its macro bear trend but will have a limited effect on prolonging its uptrend going forward.”
Bitcoin’s price has a huge effect on ETH too. Chart-watchers note the similarity in their candlestick patterns: they seem intrisically intertwined. This is the effect of Bitcoin dominance on the market.
Now it a key time for the Ethereum price. $158 is a key support level, and it’s just been broken.
“ETH/USD has only rebounded from the $158 level four times in its history,” the trader explains.
“The first time, in mid-June 2017 it rallied all the way up to $421. The second time, in late August 2017 it retook $400. That’s a 150% gain. The third and fourth bounces happened more recently.
“On the flipside, $368 is a region of resistance – traders tend to sell ETH there.
“The rubber band analogy is a useful way to think about this. Enthusiastic buyers who succumb to FOMO rush to buy ETH in its uptrend. This exuberance prolongs or stretches a rally to the upside before it gets snatched back down as the price returns to equilibrium.
“The harder the rubber band stretches one way, the harder its stretches back. The $368 is a level where the selling begins but because of the overly optimistic buying of ETH/USD, the rally overshoots towards the $400 level.”
A long breakdown below $158 spells trouble for ETH, says RektCapital.
Ethereum entered the $158-$368 range after a prolonged period of 4.5 months closely mimicking Bitcoin’s price action,” the analyst explains.
“While Bitcoin rallied 30%+ after breaching its key $4,150 resistance, ETH only managed a 16% rally after breaching its key $158 resistance. This $158 level has since become a support on its most recent third and fourth test.
“The most important thing at this stage is for Ethereum to stay above $158 and continue to respect the range.
“If it doesn’t manage to hold above $158, this would be an anomalous price event for ETH, as $158 support has historically always offered significant market reaction.
“A breakdown of the $158 level would be a tremendous invalidation. However, this wouldn’t necessarily be disastrous for Ethereum’s price action as long as it respects the black trendline that is denoting its 4.5 month uptrend.”
[Disclaimer: This article does not and should not constitute financial advice. Always, always, always do your own research before making decisions with your money.]