Last year’s bear market hit the altcoin market very hard, with crypto prices crashing by more than 90 percent for most altcoins.
The same picture is reflected in leading altcoin Ethereum (ETH), which also had to contend with other setbacks on top of the biting crypto winter. Top of the list was the massive decline in ICO activity that had characterized the 2017 and early 2018 boom.
The platform also expected a number of protocol upgrades that have all faced delays for various reasons.
Accordingly, Pugilist Ventures founder Christopher Brookins says that a number of fundamental indicators that in theory would “be indicative of positive price momentum,” point to the fact that ethereum is being undervalued.
In an opinion piece published by Coindesk, Brookins notes that Ethereum’s network value has declined by nearly 93 percent; gas consumption dropped by 7 percent, transaction count down by 52 percent, while active addresses have fallen by about 73 percent.
Even network transaction volume, he notes, has reduced by about 99 percent from the previous peak.
A correlation analysis of Ethereum’s fundamental metrics suggests there is a correlation matrix between the indicators and the change in ETH prices.
According to the analysis, it appears indicators of quality, that is average and median transaction values, are behind ether price movements.
It is the reverse when it comes to quantity indicators like active addresses, transaction counts, and gas- an aspect that goes against Metcalfe’s’ Law.
In particular, those metrics that measure the ratio of quality to quantity- like average transaction values, median transaction values, and transaction volumes (TAAR) – all show a positive correlation with the price of ether.
It, therefore, follows that ethereum may find a stable price bottom if it experiences an increase in its network transaction volume correlating to quantity metrics.
The potential for price growth is there, especially so if these metrics result in increased use of decentralized applications (dApps) that bring solutions to real-world problems.
Ethereum’s TAAR ratio
The metric that measures the balance between quality and quantity fundamentals on the network is the transactions volume to active addresses ratio (TAAR).
According to data from coinmetrics.io, Ethereum’s TAAR and price logarithmic, unlike that of BTC, does not act as an equilibrium gauge. Instead, it points to the movement of ETH prices as shown in the chart below.
Courtesy of Coinmetrics.io
From the above, if TAAR holds at 1000, then ethereum will likely have already bottomed out at prices close to $100. However, if TAAR crosses to levels below 500 (red line) or 300 (black line), then ether should experience further price declines.
Active addresses versus avg. daily transaction value (AAAT)
The ethereum network’s AAAT helps identify the negative correlation of prices due to the impact of quantity, with data showing that ETH prices and AAAT correlate at -0.09.
It means that, for instance, when the number of active addresses (quantity) spikes higher than the percentage of the average value of transactions (quality), then the coin’s prices react negatively.
While ETH prices have historically crossed below the AAAT, any move above this will signal that the network is primed for price growth. Notably, ether prices have fallen below the AAAT, which could be indicative of more declines unless quality metrics pick up positive momentum.
A look at the TAAR and AAAT shows that the two are potential factors in the counterbalance necessary to see prices move.
Courtesy of coinmetrics.io
In December 2015, TAAR declined considerably while AAAT increased- with the two meeting at the one-day and 30-day averages- and bounced off each other to see the AAAT head lower while the TAAR moved up.
In Q1 2016, ether’s price increased dramatically, leading up to the significant price growth that saw the coin hit its 2017 bull run.
That same scenario is visible at the moment, with TAAR moving lower while AAAT is increasing. At the same time, the divergence between these two is growing smaller and could potentially end in another price run beginning Q4 2019.
Theoretically, the above scenario will play out if the crypto market doesn’t experience any extreme negativity and demand for the token remains strong.
Disclaimer: This is not investment advice. Cryptocurrencies are highly volatile assets and are very risky investments. Do your research and consult an investment professional before investing. Never invest more than you can afford to lose. Never borrow money to invest in cryptocurrencies.