ETH Fundamentals vs Divergences

It didn't take long, but we are back in breakout mode.

In just this week, we heard multiple discussions of an ETF being floated in London from a local broker. For now it’s just talk, because the logistics of setting up an ETF are challenging (for one, instantaneous rebalancing would be difficult); that said, a closed end fund could be done immediately or an offshore mutual fund designed to be rebalanced daily?!

Along those lines we had a conversation we a large ETF provider in the City who told me institutional investors are asking him when some sort of “crypto” security is coming, nearly daily. Then today it was reported that one hedge fund service provider has over 60 funds in “launch” phase. Not to surprising to us, since we are also considering it. We had thought the risk of prices going lower was possible from ICO dumping, now we only see sunshine for the foreseeable future. Let’s see how the ICO craze continues, that is really ETHs only short term road block, but even that is probably just a stumbling block at best. The best news for BTC, and especially ETH was the SEC implying regulation. Just go over to Filecoin.io and pre-register — note you will be required to qualify and provide documentary proof — that’s going to dissuade a ton of buyers — and its way above usual SEC standards (which normally accept a self qualification by responding to questions). Nervous are we (should be!)? There is a good legal reason for this — but that doesn't change how it will impact the ICO — or, the real reason which comes from legal fears about regulatory challenges. Just two months ago, no one would have bothered. Clearly US issuers are worried and that is going to damper their offerings — we wouldn't be selling to US investors, even ones anxious to buy from us — the US is too litigious and when things go south, they will look for deep pockets to sue. The recent Israeli stox.com offering (not one I would have recommend) was IP blocked to the US (smart!). All this tells me there will be less high quality US ICOs coming, except from the more aggressive sellers (be wary unikoin gold buyers, since while offshore, it’s backed heavily by US investors)

We have written about the elicit flows of funds that are helping drive these currencies higher (which alone could add up to $100bs of market cap) from Eastern Europe, South East Asia and China, but now legitimate speculators are coming into the market and those forces can be just as massive. Even more ICOs may not get in the way now, unless we get a few $100M plus offerings soon. The best metric to watch, in my opinion, is new wallet address creation on the ETH blockchain vs ETH Price:

Now new wallets could be empty, but when you combine this chart with the growth in network hash rates you really see that the recent price fall was nothing more than a buying opportunity.

We think that biggest factors continues to be that demand is once again swamping supply and it’s likely that ETH will now easily retest the old highs in coming weeks (or much sooner).

This doesn't mean we won’t have more volatility, it just means that short term consolidation is over. It’s time to buy the dips and avoid selling the rallies. Keep an eye on these dynamics and when you see prices falling but hash and address growth expanding, that sort of divergence is just another buying opportunity.

So now, just be long…