EOS (EOS) has been on a rollercoaster ride this past month, and is currently down 65% from the record high posted in April 2018. The market cap is now the 5th largest among all coins tracked by BraveNewCoin, at US$6.13 billion, with exchange-traded volume of US$911 million in the past 24 hours.
EOS was created by Block.One. Much like Ethereum (ETH) and NEO (NEO), as well as other dApp or smart contract enabling blockchains, EOS can be thought of as a world computer running smart contracts on Virtual Machines. ETH and NEO use gas to pay for units of computing power while EOS uses RAM.
The EOS platform also leverages Delegated Proof of Stake (DPoS), a consensus mechanism pioneered by EOS and Block.One CTO Dan Larimer. With DPoS, users vote for delegates, or Block Producers (BPs), who are considered trusted and good actors. The top 21 EOS BPs validate the blockchain, collect a passive income, and are expected to help further protocol development by proposing changes or improvements.
The EOS platform went live on June 14th, after raising ~US$4.2 billion in a year long ICO where the average token price was US$5.74. However, the platform has been fraught with issues, including; a last minute bug bounty program which found 12 critical bugs, delayed voting for early BPs due to security concerns from users, a bug interrupting the platform soon after it went live, a constitution which includes articles on forfeiture and arbitration, an unannounced arbitration action where BPs were expected to comply, Block.One using their majority stake of EOS to vote on BPs despite previously declaring they wouldn’t, and user reports of difficulty registering for airdrops.
The most critical issue for EOS currently is the cost of RAM on the virtual machine. RAM on EOS is subject to supply and demand, as well as speculation, and is required to create new accounts or interact with dApps. A few users attempted to corner the RAM market and in July, when costs reached as high as 900EOS/MB. New account creation uses 4kb of RAM, which means that creating a new account in July would have cost ~US$32. The market for RAM has since settled down.
New account creation costs are still a concern to users, while interacting with dApps has also remained expensive. In response, 15 of the 21 EOS BPs recently approved a measure to double the supply of RAM, and therefore decrease the cost of available RAM. New account creation costs US$5.45 at current prices.
Looking at the 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio, the EOS data is limited in scope due to the recent token swap from the ERC20 tokens sold in the ICO to the native EOS blockchain tokens. The Kalichkin NVT is currently 17.23 with US$133 million transacted in the past 30 days. Inflection points in NVT can be leading indicators for a reversal of an asset’s value. A clear downtrend in NVT suggests a coin is undervalued for its utility and should be seen as a bullish price indicator.
Turning to developer activity, the EOS project on GitHub has had a cumulative 5,109 commits over the past year, which is the highest number of any coin. Most coins use the developer community of GitHub, which was recently acquired by Microsoft for US$7.5 billion. Files are saved in folders called “repositories,” or “repos,” and changes to these files are recorded with “commits,” which save a record of what changes were made, when, and by who. Although commits represent quantity and not necessarily quality, a higher number of commits can signify higher dev activity.
In the markets, exchange traded volume is led by Tether (USDT) with the Bitcoin (BTC) and Ethereum (ETH) pairs accounting for a similar percentage of volume. The exchanges with the highest percentage of volume include Huobi, OKEX, Binance, and Bitfinex.
Despite the year long ICO, a secondary market for EOS has existed since July 1st. Trend indicators like Pitchforks, Exponential Moving Averages (EMAs), Ichimoku Cloud, as well as chart patterns, can help determine whether the coin holds a bullish or bearish trend. Further background information on the technical indicators discussed below can be found here.
A bearish Pitchfork (PF) with anchor points in January, March, and April draws a median line (ML) with a current value of ~US$3.75. Price will continually attempt to return to the ML throughout any given trend. This level is also near two previous extreme lows in price. Based on the current position of price, the bearish PF won’t likely be invalidated for another month.
Additionally, the first bearish 50/200EMA cross has occurred on the daily chart. This cross carries special significance, as it’s typically the beginning of a bearish trend, and is aptly known as a Death Cross. Price has remained below the 200EMA for the past month, the longest duration since trading began.
Turning to the Ichimoku Cloud, four metrics are used 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, and the Lagging Span. The best entry always occurs when most of the signals flip from bearish to bullish, or vice versa.
The status of the Cloud metrics on the daily time frame with doubled settings (20/60/120/30) for more accurate signals are bearish; price is below Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and touching the current price. A traditional long entry will not trigger until price is above the Cloud. The position of the TK lines show a growing C-Clamp, which can be thought of as a bullish divergence, and suggests oversold conditions. If price does not make lower lows, a target of ~US$11 is likely.
On the 12 hour chart, the status of the Cloud metrics using doubled settings (20/60/120/30) are also bearish; price is below Cloud, the Cloud is bearish, the TK cross is bullish and nearly bearish, and the Lagging Span is below Cloud and touching the current price. Again, a traditional long entry will not trigger until price is above the Cloud. However, there was a recent window for a bullish Edge to Edge trade, which triggers with a candle close in Cloud. Instead, price was denied several times exactly at Cloud resistance. A bearish TK recross below Cloud would be strong evidence for a short entry signal.
Furthermore, price structure recently completed an inverted head and shoulders, a bullish reversal pattern. Price failed to break the neckline and has dropped below the right shoulder, triggering stop losses for any eager longs. The pattern had a target window near the flat Kumo, showing confluence with the failed Edge to Edge trade detailed above.
For the EOS/BTC pair, the 50/200EMA on the daily will also likely cross bearishly over the next few days. Price has also reached the ML of a bearish PF with anchor points in January, March, and April. A potential trajectory includes returning to the 200EMA and then retesting the ML as support.
Over the past four month, the EOS/BTC pair also has formed a falling wedge, a bullish reversal pattern, with a descending volume profile. Triangles and wedges typically break support or resistance after completing ¾ of the pattern. The wedge yields a measured move and 1.618 fib extension of 0.0029BTC and 0.0033BTC.
EOS is in the early stages of determining how the network will handle decentralization, scalability, and security. Despite having several issues the network has remained robust, able to handle any challenge, and correct course. A swift response to the seemingly unforeseen RAM price spike, which will be seen as a threat to scalability, appears to be a product of a new platforms inherent centralization. Recent BPs, and Block.One’s vote for those BPs, reflect this centralization risk. As EOS is further distributed over time, centralization risks should decrease. However, network governance will eventually be tested with less straightforward issues.
Technicals suggest the EOS/USD market has entered a fresh bear trend. EOS will remain in a bear trend until a bullish 50/200EMA cross forms, with a candle close above the bearish pitchfork and daily Ichimoku Cloud. The EOS/BTC market has returned to the ML of the bearish PF and has formed a falling wedge, both of which are suggestive of a potential near term bullish price reversal.