Similar to other coins and tokens, Ethereum has generated a substantial rally throughout the past six months. Specifically, ETH has increased 498%, outperforming BTC by approximately 60% during the same time period (see chart 1 below). So, where do we go from here? How will ETH perform for the remainder of 2021 and beyond? Let’s explore the details.
The Difference Between Ethereum and Ether
In terms of market capitalization, ETH is the second-largest cryptocurrency in the crypto universe. Only Bitcoin has a larger market capitalization. ETH has enjoyed some explosive price moves throughout its brief 6-year history. But, before we analyze the future price direction of ETH, let’s briefly discuss the difference between Ethereum and Ether.
There seems to be some confusion regarding these two crypto terms. Ethereum is a blockchain-based platform used for writing autonomous smart contracts and decentralized applications. Ether is the cryptocurrency that serves as the fuel to power the smart contracts, apps, and other transactions on the Ethereum blockchain.
Although most people in the crypto community (including many crypto websites) use these words interchangeably, they are actually quite different in terms of how they are used in the crypto ecosystem.
Use Cases for Ethereum Blockchain Continue to Expand
In this article, we will be analyzing the price direction of Ether (ETH), the cryptocurrency. However, it’s also important to discuss Ethereum, the blockchain, because it lays the foundation for the current ETH bull market. It seems almost impossible to believe that Ether was trading below $100 per token less than 15 months ago (see chart 2).
Over the course of the past 15 months, ETH has exploded to the upside by increasing 2,226%. Since March 2020, ETH has been one of the top-performing cryptocurrencies within the entire crypto universe. Ether easily outperformed Bitcoin during this particular time period, 2,226% versus 1,388%.
The majority of Ether’s gains can be attributed to the fact that the total number of use cases for the Ethereum blockchain has increased substantially. Unlike the Bitcoin blockchain, Ethereum can be used for multiple applications across a wide variety of industries. Several of these applications have evolved into legitimate and profitable business enterprises with exponential growth potential. Let’s briefly examine a few of these Ethereum-based businesses.
DeFi (Decentralized Finance)
Without question, the most exciting new business linked to Ethereum is decentralized finance, more commonly known as DeFi. Although DeFi has been in existence for less than four years, it has gained an incredible amount of interest from venture capital firms and angel investors who see the enormous potential in this new space.
Without going into great detail, DeFi competes head-to-head with the legacy financial services industry, with an estimated value of $26.5 trillion by 2022, according to data gathered by The World Bank. Based on these numbers, the upside potential in DeFi is massive. This is great news if you are an owner of ETH because the overwhelming majority of the DeFi ecosystem operates on the Ethereum blockchain.
NFTs (Non-Fungible Tokens)
Another business venture associated with Ethereum is non-fungible tokens (NFT), which have witnessed a tremendous wave of enthusiasm from investors and speculators during the past few months. Very briefly, non-fungible tokens allow non-fungible assets to possess unique properties that completely change the user and development relationship of these assets.
Examples of non-fungible digital assets include digital collectibles, such as in-game items and characters, virtual pets, and representations of fine art. By attaching unique properties such as immutability and scarcity to non-fungible assets, it substantially increases the value of said assets.
Almost the entire NFT industry operates on the Ethereum blockchain, which is obviously bullish for ETH. Arguably, the most exciting part of NFTs is the fact that young people are heavily involved in this exciting new space. Consequently, this will provide Generation Z with an opportunity to familiarize themselves with cryptocurrencies and other digital assets. This is very bullish from a long-term perspective.
In addition to DeFi and NFT, the Ethereum blockchain is also actively engaged in enterprise software, which is used by organizations, businesses, charities, schools, and governments to handle day-to-day operations across a wide variety of internal departments within each organization.
These daily operations would include such tasks as human resources, supply chain management, database management, CRM, security, and billing systems. Enterprise software companies are using a privatized version of the Ethereum network to provide their services to companies like Microsoft, IBM, JPMorgan Chase, and Deloitte.
These are just a few examples of how the Ethereum blockchain is linked to industries and businesses across the global economy. Of course, this is extremely bullish for ETH because these companies and businesses must purchase ETH in order to pay for their services on the Ethereum blockchain. Many crypto experts believe that the number of use cases for Ethereum will continue to expand as blockchain technology becomes more common throughout the global economy.
Using TA to Forecast the Price of ETH
Technical analysis has been extremely useful in forecasting the future price direction of ETH. Let’s review a few of these indicators.
Arguably, the most reliable technical indicator in modern history was created by a twelfth-century Italian mathematician by the name of Leonardo Fibonacci. The vast majority of mathematical historians consider Fibonacci to be the greatest mathematician of the Middle Ages. In fact, many experts in the field of mathematics claim that Fibonacci was one of the ten greatest mathematicians of all time.
Fibonacci made several important contributions to the field of mathematics throughout his life. However, he will always be most famously known for Fibonacci numbers, which are a sequence of numbers developed by Fibonacci circa 1202.
Fibonacci numbers are used in the study of nature, music, agriculture, computer applications, price forecasting, and several other fields of study. Stock and commodity traders use “Fib” numbers to calculate support and resistance levels.
The most common Fib levels are:
It’s not uncommon for financial assets like cryptocurrencies to fluctuate between Fibonacci support and resistance levels for long periods of time. When a major breakout finally occurs, it usually marks the beginning of a substantial move.
The crypto trading community would love to know the final top in ETH before a new bear market ensues, probably near the end of 2021 or early-2022. Of course, it’s impossible to accurately forecast the final top of any speculative asset. Cryptocurrencies are particularly difficult because we have such a small sample size of historical data. However, we can use Fibonacci numbers to develop an educated forecast concerning the final top for Ether. Please review the calculation on Chart 3 below:
There are several different ways to use Fib levels as a forecasting device. The most popular format involves calculating the price difference between two important price levels. For this particular calculation, we selected the historic high from January 2018 and the subsequent low achieved in December of the same year.
The majority of Fibonacci experts agree that .618 is the most significant Fib level. Therefore, we will use this number in our calculation. Based on the Fibonacci calculation, the final top for this cycle will be 4,921.73. If ETH follows the same path as the 2017 bull market, the top will occur in late-2021.
Another useful technical indicator is the Relative Strength Index (RSI), which was created by J Welles Wilder Jr, one of the greatest technical analysts in the history of financial markets. RSI is a momentum indicator that measures the overbought or oversold condition of a speculative asset. RSI is typically displayed in an oscillator format, which fluctuates between 0 and 100.
Generally speaking, a market is considered overbought if the RSI reading exceeds 70. Conversely, the market is considered oversold if the RSI reading falls below 30. Many traders will use a reading above 70 as a trigger to generate a sell signal and a reading below 30 will generate a buy signal. However, this is not a good strategy to follow in a momentum-fueled environment like cryptocurrencies. Please review Chart number 4:
The RSI reading has been above 70 since November 9, 2020, when ETH was trading @ 446.10. Obviously, this was not a good time to sell ETH. In fact, this would have been a great time to buy Ether. Therefore, an argument could be made that the optimum way to use RSI for trending markets like cryptocurrencies is to wait for a bullish breakout above 70 as a buy signal. A bearish breakout below 30 would constitute a sell signal. Trying to pick tops and bottoms in a trending market is a recipe for disaster. As Chart #4 clearly demonstrates, the best course of action is to follow the momentum.
In addition to RSI, another momentum-based indicator is the Money Flow Index (MFI). This indicator measures the inflow and outflow of money into a speculative asset over a specific period of time. It uses price and volume to calculate trading pressure. Arguably, MFI is the purest way to determine the amount of money entering and leaving a particular asset class.
Similar to RSI, the index fluctuates between 0 and 100. In terms of trending markets like cryptocurrencies, the best way to apply MFI is to wait for a bullish breakout above 70 or a bearish breakout below 30. MFI is located at the bottom of Chart #5.
An Ether buy signal was generated @ 509.11 on November 23, 2020, when MFI penetrated the 70 level. MFI has been continuously above 70 for the past five months. This is a perfect example of why it’s best to follow the trend of the market and avoid the temptation to pick a top or bottom.
At least for now, the trend of ETH is clearly in favor of the bulls. The vast majority of technical indicators are forecasting a continuation of the bull market. In addition to technical analysis, the fundamental backdrop for Ether is extremely bullish, as more use cases are being added to the Ethereum blockchain. Eventually, this bullish cycle will end and a new bear cycle will begin. However, this current bullish phase could easily continue for the remainder of 2021.
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