The performance and origin of the Ethereum Classic token is one of the most important and interesting stories in the world of digital currency and cryptographic assets. The story of ETC centers around an ideological and ethical discussion surrounding the nature of a what a blockchain should aim to be.
ETC is currently the 17th largest crypto with a market cap of 1.87 Billion USD, and is currently trading at 15.32 USD (Index price: Thursday 30th May 21:00 GMT).
The most popular exchanges trading ETC are OKEX, followed by BCFX, Bit-z and Binance.
Splitting the difference
Ethereum Classic came into being on October 2016. Technically, however, this is not really its true date of inception, as ETC is actually the original Ethereum network. It only exists because of a network hardfork where the majority of Ethereum users switched to a new blockchain which retained the ETH classification.
The birth of Ethereum classic is complicated but a succinct summary of it may provide some context for a deeper discussion into what, in the future, may affect its price.
In the spring of 2016, Ethereum had a singular, enthusiastic community. Ethereum’s potential to be a ’world computer’ was considered truly transformative technology. It could act as the host of pretty much any form of digital agreement via its smart contract capabilities.
Excited early adopters of Ethereum looked towards their next step – The Decentralized Autonomous Organization – aka the DAO. The DAO was set up on a complex smart contract and designed to be a fund for startups using the Ethereum ecosystem. An extraordinary 12% of all Ethereum in circulation at the time was put into the DAO, and the funds were set aside in hopes of aiding new projects and use-cases, facilitated using Ethereum.
On the 16th of June 2016, the ambitions and aspiration of investors in the DAO ended in calamity. A fatal bug in the DAO contract was exposed by hackers. Around 50 million worth of ETH was lifted and the DAO project was forced into inoperability.
Luckily, even though the hackers had removed the ETH they still did not have access to it due to funds in DAO contracts being locked away for 28 days, meaning there was a window to look for a solution. This is where cracks in the community began to form.
The Ethereum network could either: do nothing — the immutability argument — or trigger a fork. A hardfork was selected because of technical issues surrounding applying a less disruptive softfork.
A hardfork works by separating blocks created before and after a certain date (in this case the DAO hacks). The purpose of the new network existing was to return all the Ether taken from the DAO to a refund smart contract so that DAO investees would be returned their lost funds.
Parts of the community were immediately unhappy with this idea; the plan was called a bailout and a failure to follow the original ethos of distributed ledgers. However, the ‘new Ethereum’ camp claimed that leaving DAO investors high and dry, when they had done nothing wrong, was unacceptable. They also felt that they could not let hackers simply walk away with stolen Ether, and thus, the split between Ethereum classic and Ethereum was created with each camp existing in the respective old and new networks.
Price and volume analysis
The biggest challenge for Ethereum Classic has been its a lack of backwards compatibility with the new Ether network. Most of the core leadership team left for the ETH network and new updates, such as the switch from PoW to PoS, have only been available on the new network.
Since the split, ETH has ridden a wave of success as the go-to smart contract facilitator for ICOs, while the ETC ecosystem has had nowhere near the same levels of success.
Ethereum (ETH) since the split, has witnessed big increases in its usage, applicability and price. Since October 2016, Ethereum’s price has increased from the US$10-12 range to currently trading at around US$550. ETC has shown good returns for early investors, though nothing like that of ETH’s.
Like ETH, ETC gained initial popularity in Korea and was quickly adopted by major exchanges there such as Bithumb and Korbit.
In BNC’s price analysis of ETC in November 2017, KRW pairs were the key drivers of volume in the Ethereum Classic market and accounted for 73.75% of all trading volume.
(November 2017, ETC trading pairs)
On the 30th of May 2018, the figures for trading volumes and currency pairs look completely different.
The change is striking both in terms of actual volume and the percentage of total volume traded. In the earlier price analysis, ETC trading volumes may have been inflated/over reported because of the zero-free transaction pairs available on multiple exchange platforms.
The top two pairs are now both crypto-to-crypto (BTC and Tether) and there has been a deep fall in popularity of the fiat-to-crypto KRW/ETC pair.
Clearly, the Korean exchanges have nowhere near the same effect on Ethereum Classic transaction volumes now as they did eight months ago. Some of this may be down to reliability issues with Korean exchanges such as Bithumb.
When the price of coins such as Ethereum Classic and Bitcoin Cash surged and users flocked to exchanges to make trades, many Korean exchanges simply could not deal with the volume of business. They faced issues expanding server space, managing their own growth and accepting new deposits. In Bithumb’s case, millions of Won was lost during outages and this led to numerous investigations and lawsuits.
Since investigations by South Korean authorities into Bithumb at the start of the year, the premium on the ETC/Korean Won has pretty much disappeared. On January the 14th, the pair had a premium of 22% against the index while currently, the premium sits at a relatively insignificant 2%.
(KRW vs Index premium, Blue line vs Orange line)
Controversy and regulation
ETC has had to deal with the tag of being the disruptive, low achieving, elder sibling of ETH for a while. Many of its recent price rises are thought to have come from speculative moves made by major market influencers like Barry Silbert, who has strongly backed ETC’s capabilities over Ethereum.
Many of Barry Silbert’s tweets seem to be a little simplistic when backing his own horse.
ETC moving forward
Despite some of the underlying negativity surrounding Ethereum Classic , it is nonetheless a top-20 crypto and has a core development team that has worked hard to improve what ETC can offer its ecosystem.
The biggest move of 2018 has been the Callisto airdrop which generated its own token, CLO. Airdrops are exciting because they essentially mean free coins for investors.
The way this worked was that a snapshot of the ETC blockchain was taken immediately before the drop, and any ETC holder at that time, was gifted new tokens. In this case holders were rewarded with CLO tokens on the new Callisto network one for one with ETC. The Callisto token was launched on the 5th of March and is currently available to be traded on the YObit exchange with both crypto-to-crypto and fiat-to-crypto (USD) options. Price for CLO is currently around US$ 0.15.
There are future Airdrops scheduled for November 18th, 2018 and May 15th, 2019, and part of Ethereum classic’s future strategy will be to create buzz surrounding the two drops. One would expect to see some positive price actions in the days and weeks prior to the launch dates so ETC observers should calendar those events.
Both tokens are very much part of the same family and brains trust. Callisto is a reference implementation, essentially an experiment, for the Ethereum Classic ecosystem to see what may work with ETC’s new goal of becoming the go to store-of-value digital asset.
CLO holders will have the option to cold-stake their coins, meaning they will enter a smart contract that will designate their CLO tokens as accruing interest over time, incentivizing long-term holding. The end goal here is to identify whether a cold-staking protocol can create the viable store-of-value asset solution that ETC is hoping to become.
Callisto also aims to create an improved system of smart contract auditing, a service which is currently very expensive. Smart contract auditors who operate on the network earn CLO tokens for their services.
As a smart contract request is sent to the network, it is verified by the self-governed Callisto auditors who rewarded by the blockchain. If the contract meets the security requirements of the network, they are put onto an approved registry.
The smart-auditing protocol aims to prevent DAO-style, large-scale smart contract flaws from ever happening again. This aspect of the project correlates well with the ideological position ETC backers had post the DAO hacks, and the Callisto launch should quiet naysayers who claim that ETC exists purely as a tool to disrupt the ETH blockchain.
A new fork
On May 29th Ethereum Classic initiated a hardfork to remove a ‘difficulty bomb’ in its code. Mining becomes twice as difficult every 100,000th block on Ethereum blockchains. As the Ethereum Classic Mainnet approached block 5,900,000, said to be around September 2018, concerns mounted as to whether mining would have remained profitable if ETC stuck with the status quo.
Rather than risk a network collapse due to an exodus of miners, ETC instead removed the difficulty increase algorithm design, and implemented a new Proof-of-Work consensus algorithm. This is timely, given Ethereum’s Proof-of-Stake Casper move — which ETC advocates argue is prone to centralization and contrary to the ethos of a distributed ledger.
Increased attention and positive sentiment recently saw a ~90% price boost for ETC from its April lows. However, since that boost, almost the entire ~90% gain has been erased with price trends pointing bearish in the medium term.
Exponential Moving Averages (EMA) with Long Term Trends
On the daily chart, the bullish EMA recross, or Golden Cross, using the 50/200 day EMA, has not occurred and price has recently fallen through the 50 day EMA (blue line). EMA crosses are poor at spotting market inflection points, but do provide a decent gauge for the overall price trend, which remains negative for ETC.
Using the 1 week chart (there is minimal historical data to analyze, so it should be taken with a grain of salt), the long term price appears to have formed a negative head and shoulders pattern. Additionally, the slow wave trend oscillator is still bearish and yet to reach oversold territory.
Without a significant change in buying volume and sentiment, this long term, downward trend could be hard to breakout of in the near term with a hypothetical price target of ~$3.18 (black line). This price target is an overly bearish scenario, but still valid given it is a combination of long term support, coupled with the head and shoulders peak to neckline retracement (assuming ~$27 as smoothed peak and neckline of ~$15).
Ichimoku Clouds with Slow Wave Trend Oscillator (SWTO)
The Ichimoku Cloud uses four metrics to determine if a trend exists; the current price in relation to the Cloud, the color of the Cloud (red for bearish, green for bullish), the Tenkan (T) and Kijun (K) cross, Lagging Span (Chikou), and Senkou Span (A & B).
The status of the current Cloud metrics on the daily time frame with singled settings (10/30/60/30) for quicker signals is bearish; price is beneath the Cloud, Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and price.
A traditional long entry would occur with a price break above the Cloud, known as a Kumo breakout, with price holding above the Cloud. From there, the trader would use either the Tenkan or Kijun as their trailing stop.
Post “end of tax season bottom,” price attempted to break above the Cloud, but failed near the $25 level. Since then, the positive TK cross reversed, price begun falling, and is now below the Cloud. Price currently sits at ~$15 which has acted as good support thus far. Additionally, the SWTO recently turned bullish from close to oversold territory. These two factors may help buoy price in the short term, which may enable ETC to retest a Kumo breakout with the key resistance level to watch being ~$19.30, the flat Senkou B level (red line). A breach and hold above the Cloud would signal a long entry with potential price targets of $25 and $28.
The status of the current Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals is bearish; price is beneath the Cloud, Cloud is bearish, TK cross is bearish, and the Lagging Span is below Cloud and price.
Again, price attempted to breach the Cloud but failed at the $25 level and is currently sitting at support of $15. However, the SWTO has turned bullish from near oversold territory. Price may experience a bounce from these oversold levels, but ultimately will need to breakthrough the Senkou A resistance level of $20 and Senkou B resistance level of $28, and hold that level above the Cloud to reignite an upward price trend. If ETC fails against the resistance levels, price is likely to retest $15, $10, and $7.
However, If price successfully achieves a Kumo breakout above the $28 level, then $30 (Senkou B flat level and 0.5 fibonacci), $35 (resistance and 0.382 fibonacci level), and $40 (resistance and 0.236 fibonacci level) become possible targets.
Ethereum Classic is making bold moves. If the Callisto experiment does work, and cold-staking becomes a part of the ETC token, then we might see it become the treasury bond of the distributed ledger world. The key criteria for a store-of-value-asset is stable demand for the underlying asset. Given the current price volatility of the digital currency market, however, neither ETC or any crypto-asset can promise this.
Nonetheless, the changes Ethereum Classic is making to its taxonomy are positive in that they come from a strong core ethos and justify the backing of investors who championed ETC over Ethereum for philosophical differences. Additionally, the fact that it looks to have solved its mining difficulty issues with a new software update is a sign of long term health.
Currently, technicals are bearish but price appears to be at oversold levels which may precipitate a near term bounce. The prudent, short term trader (10/30/60/30 settings) will await a positive TK cross and Kumo breakout above ~$20 before entering a long position. Whereas, the prudent, longer term trader (20/60/120/30 settings) will await a positive TK cross and Kumo breakout above ~$28 before entering a long position.
Given the current oversold levels and near term support, a short-lived price bounce is likely with targets of $18 and $20. However, given the bearish technicals, a resumption of the downtrend post-bounce is probable with potential targets of $10 and $7.
Disclaimer: This analysis has been designed for informational and educational purposes only. Readers are advised to conduct their own independent research into individual assets before making a purchase decision.
About the authors
Christopher Brookins is the founder and CEO of Pugilist Ventures, a quantitative investment firm focused on digital assets and blockchain technology. Chris has a deep knowledge and unique perspective on digital assets formed by his polymath experience in equity trading, credit investing, and business development at two West Coast startups (one acquired). He has been involved in the blockchain community since 2014. Follow @chris__brookins
Aditya Das is Brave New Coin’s in-house market analyst. Raised in Dubai, UAE, he holds a post-graduate honors degree in Economics from the University of Auckland and a BA in Economics from the University of Sussex. Prior to joining BNC his most recent roles were as a researcher and Economics tutor at the University of Auckland.