Ethereum Update: Bottom Already Reached | Hacked: Hacking Finance
hacked.com - Kiril Nikolaev, Ken Chigbo, Justin Oconnell, Mate Cser
To say that Ethereum (ETH/USD) had a bad 2018 would be a huge understatement. After climbing as high as $1,424.3 in January 2018, the market quickly reversed. 11 months later, Ethereum recorded lows of $83 on December 7, 2018. In other words, the 2018 bear market has devalued Ethereum by over 94%.
While this is disastrous to investors who bought positions prior to the December 7 low, we are inclined to think that the worst is behind us. We’ll even go as far to say that Ethereum will not be making new lows anytime soon. In this article, we explain why the bottom is most likely already in.
Volume Upticks Show Capitulation
One of the reasons why many retail traders fail to catch the bottom is because they’re too focused on price action. They look at the chart and formulate their bias by trying to figure out the current structure or even candlestick pattern. Many fail to include volume in their analysis when in fact, it is the most reliable indicator of a market that’s bottoming out.
When an asset is in a downtrend, a significant volume surge over a fairly short period of time is a strong sign that participants have capitulated. In other words, retail traders have given up hope on trying to recoup gains that they sell their positions at a loss. This inspires a massive panic selling causing an asset like Ethereum to nosedive. We saw this happen on the week of November 19, 2018.
Ethereum volume uptick
During that week, Ethereum printed its largest volume in its history on Bitfinex. Volume stayed significantly elevated for six more weeks. This more than meets the usual criteria for capitulation.
Capitulation Requires Tremendous Capital
When a market capitulates, the asset is transferred from the hands of the dumb money (retail) to the hands of the smart money (institutions or whales). While this may sound familiar to most retail traders, what many fail to realize is that it takes tremendous resources to keep the price of an asset like Ethereum from spiraling out of control during this period.
To get a better understanding of this argument, let’s look at the volume printed on Bitfinex from
November 19 to December 7:
Week 1 (November 19)
- Volume = 6.072 million ETH units
- Range High = $178.99
- Range Low = $102.96
Week 2 (November 26)
- Volume = 3.585 million ETH units
- Range High = $127.87
- Range Low = $102.2
Week 3 (December 3)
- Volume = 3.97 million ETH units
- Range High = $117.53
- Range Low = $83
(Median Range/Price: $130.995)
Over this three week period, the smart money had to absorb selling pressure to the tune of 13.627 million ETH units. If you multiply this by the median price of $130.995, that’s a mind-blowing $1.785 billion! Whales had to commit such an amount to keep prices from falling further. Even for rich people, this is a huge investment.
If you’re a savvy investor, the only reason you would invest such a huge amount of money is the promise of generous returns.
Absorption Translates to Market Control
If you’re a whale and you bought $100 million worth of Ethereum at $150, your investments are down by 17.33% at current market levels of $124. In other words, you are in the red for $17.33 million. To an ordinary investor, this is unacceptable. However, the smart money can tolerate such a tremendous loss because they have assumed significant control of supply. This is the primary reason why we believe that the bottom is already in.
As mentioned, it took tremendous resources to keep Ethereum above $83. On top of that, it took the smart money an additional 11 million ETH units to pump the market from $83 to $163 between December 10 – December 24. All in all, the smart money has likely accumulated about 24 million out of the 104 million ETH units in circulation between November 19 – December 24.
Ethereum is a market that trades a daily average of over 200,000 ETH units. If you were to control millions of ETH units, you could trigger dumps and pumps at any given moment.
Average daily trading volume of Ethereum
Right now, it makes sense from a whale perspective to pump the market to around $200 and protect that level. By doing so, the smart money will ensure that their investments are in profits. More importantly, the price action will attract retail traders and generate bullish sentiment. Once the fear of missing out sets in, Ethereum will likely pump on its own and generously reward those who invested at the bottom.
Bottom Line
The significant volume upticks between November 19 – December 24 convince us that the bottom is already in. The smart money have accumulated a sizeable portion of the current Ethereum supply such that they may be able to trigger dumps and pumps anytime. Having this control enables them to pump the market to around $200 to protect their investments, lure retail money, and generate profits in the future.
Disclaimer: The writer owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock.
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Kiril Nikolaev, CFA
Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and ETFs, as he does his own crypto research and is the subject matter expert at ETFdb.com. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.
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