What is Ethereum’s True Value?

At the start of the year 2017, Ether (ETH) experienced about 5000% increase in value when 1ETH moved from a value of $8.34 to a high of about $400. ETH runs on an underlying technology called Ethereum which is a different block chain to that which runs bitcoin. Ethereum unlike previous crypto blockchains could be used to support several real life applications due to the fact that embedded in this block chain is the smart-contract feature.

One reason for Ethereum’s value appreciation has been due to the backing of the Enterprise Ethereum Alliance (EEA) which is a consortium of Blue-chip companies comprised of the likes of JP Morgan, Microsoft and Intel who have come together to make use of the platform to connect with technology vendors and collaborate on projects. The backing of these companies added more legitimacy to crypto-currencies and particularly the Ethereum blockchain.

Additionally, the numerous ICOs (Initial Coin Offering – a way for blockchain companies and start-ups to raise funds within the cryptocurrency community) that featured on the Ethereum blockchain this year due to the smart-contract feature helped to drive a lot of cash in and catalysed the upward spiral of ETH’s value. However in the last couple of weeks, we have witnessed a steep fall in the value of ETH from a high of about $408 to the region of $200 and slightly below and a bounce to a value of about $250 in the last couple of days.

WHY THE ERRATIC PRICING?
ETH has been bullish all through 2017 and this became particularly pronounced between March and June when a plethora of ICOs such as Bancor, Compcoin, DAO.casino, Giga Watt etc were hosted on the blockchain. These ICO’s were quite successful with some raking in as much as $140 million in just a couple of days.

Total ICOs raised in the first half of 2017 on the Ethereum blockchain sums up to about $1.3 Billion. These crowdsales increased ETH’s value so much so that ETH investors and holders were smiling to the bank. However, the huge capital injection also came with its accompanying “demons” in the form of flippers who buy into ICOs for a quick profit and the flip into either other long term coins or into mainstream money. This has therefore caused ETH some retracement since late June with about 50% loss in value recorded from its $408 high. The action of these flippers comes with the attendant consequence of the ‘panicky demography’. The panicky demography is made up of people who are easily swayed and fret by the slightest market movements such that they then begin to offload digital assets as soon as they see indications of a bearish movement and quickly begin to buy as soon as the market begins an upward trajectory. These actions to a larger extent contribute to the high volatility that has characterised ETH’s value in the first half of 2017.

Also, companies and start-ups like Tezos that raised funds on the Ethereum block chain do convert some of their asset holdings into cash to help carter for the day-to-day running of their operations and also hire top talent in the ever competitive blockchain tech space. One reason for the conversion of digital currency into cash is mainly because digital assets/currencies are to a larger extent not yet mainstream and as such payments for goods and services have to be done in today’s regular currency.

Speaking in an interview, Charles Hoskinson a co-developer of the Ethereum blockchain expressed concerns about the current ICO regime. He is of the view that some form of generally accepted ICO modus operandi needs to begin to shape up all to the ultimate betterment of open-source technology.

THE REAL VALUE OF ETH?

In the early parts of July 2017, the charts indicated stronger lows at the start of a retracement which confirmed that the ETH retracement was for real, the days that followed had charts indicating weaker lows mainly due to some level of market indecision; it seemed the market was beginning to find a support point due to new ICOs such as DDF, InsureX etc that had begun their fund raising campaigns. This was further affirmed by the Moving Average (MA) indicators of 10th July, 2017. Bollinger band analysis also indicated easing bearish movements. There were indications that the retracement would test the $175 point before the market witnesses a bounce back. ETH indeed tested $178; 3 dollars shy of the Technical Analysis (TA) indications before the bounce to $232.

Additionally, market behaviour is expected to change due to the Segwit2x and BIP149 conversation around the bitcoin blockchain which to a large extent seems to be fueling some uncertainties that is affecting most crypto-assets on the open blockchain.

So what is the real value of Ethereum? Nobody can exactly say. Some sections of crypto-enthusiasts are of the opinion that ETH is overvalued and has only been pumped by the numerous ICOs it has so far hosted. This could be true if majority of these ICOs raised fail to successfully execute their intended projects, however if a good chunk of the projects turn out right, we will actually see a further rise in ETH’s value. A cross-section of articles based on various technical analysis have however indicated that Ethereum could hit $500 by the close of year 2017.

As with all technical indicators, there is no one single cut out process to guarantee success, but by using these technical instruments to fit in well with an individual trader’s style with some initial trial and error, comfort levels will begin to improve with all types of indicators and as a result increase your odds of making wise trading decisions.

Comments