Ethereum Signals Exhaustion After Prolonged Rally

Ethereum Signals Exhaustion After Prolonged Rally

Last week, we had mentioned that ETHUSD will remain range bound between 570 and 700 levels, based on a report on UBS’ plan to use the Ethereum smart contract platform for complying with MiFID II financial regulations of the European Union. After trading between $600 and $750 for almost a week, Ethereum broke the upper band on Monday. However, it was unable to consolidate at $800 levels. We expect Ethereum to undergo a correction due to reasons given below.

The Ethereum network is gaining popularity among investors and developers as it can be basically construed as a utility software for developing smart contracts. However, nearly 14% of the transaction volumes was contributed by a block chain based game named “Cryptokitties”. As the game gained popularity, the Ethereum network faced a congestion. The trading community started discussing about other altcoins such as Ethereum Classic and Cardano ADA (gained 400% last week and has become the 6th largest coin by market cap) which offers similar features.

Understanding the concerns of investors and users of smart contract platform, the Ethereum development community responded quickly to increase the speed of transactions. Following the updates, the Ethereum network has started processing more than 10 transactions per second (864,000 transactions per day). This has brought down the number of pending transactions to about 9,000 as of today, according to Etherscan. Notably, last Thursday, the network recorded 942,559 transactions.

The development was announced by Ethereum Cofounder Vitalik Buterin and congratulated by Donald McIntyre, founder of Etherplan.

When interviewed by one of the biggest South Korean daily, Buterin told “We have a proof of concept for proof of stake. Going from proof of concept to actual adoption would take may be one year”.

With a huge team of developers working on the project, many crypto specialists expect Ethereum to upgrade to proof of stake in early 2018. Further, the scalability issues are expected to be resolved within 2 to 5 years. The facts presented above indicate that fresh updates will be available only in the new year. The buzz created by increasing the transaction confirmation speed of the network has also started fading. Thus, until new updates are announced by Ethereum developers, Ether is expected to undergo a correction after a prolonged rally.

Technically, the ETHUSD pair has started declining after failing to cross the resistance level of 804. The MACD indicator has also made a negative divergence with the price. Thus, we expect the price of Ether to decline in the week ahead.

ETHUSD - Technical Analysis - 20th December 2017

We may trade the downtrend by going short in the ETHUSD pair near 780, with a stop loss order above 850. If the pair descends as anticipated, then we will cover our short position near 650.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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