Monero Price Analysis – The ASICs at the gateMarch 17, 2018
Monero (XMR) has largely been range-bound after establishing an ATH in December. The market cap currently stands at US$3.33 billion on US$66.6 million in trading volume over the past 24 hours.
Regulatory scrutiny of cryptocurrency is growing worldwide. Head of the International Monetary Fund, Christine Lagarde, wrote in a blog post earlier this week that anonymity of transactions will help facilitate “money laundering and the financing of terrorism”. The European Union Commission Vice-President Valdis Dombrovskis also shared concerns about the anonymous nature of cryptocurrencies earlier this year.
The IMF and the Financial Action Task Force on Money Laundering have both stated that the aggregate value of money laundering is between two and five percent of the world’s gross domestic product, at about ~$2.5 trillion annually.
Despite Bitcoin’s seemingly anonymous nature, addresses are actually pseudo-anonymous. All transactions are openly stored on the blockchain and identities can be associated with addresses and transactions using chain analysis. Truly confidential transactions are 100% amoral, however. They are essentially returning to the untraceable nature of cash, and no doubt they do make criminal activity easier.
They also guarantee 100% fungibility to all coins, making each coin and transaction indistinguishable from one another. A lack of fungibility may one day lead to coin blacklisting.
XMR is a ‘privacy coin’ – that obscures the transaction and blockchain data (other privacy-focused coins include DASH and ZEC). XMR has consistently fewer transactions per day and a higher average transaction fee than both DASH and ZEC. This is largely because XMR requires a larger transaction size than other cryptocurrencies, at around 13.2kB. The baseline transaction size is set for an 80% reduction thanks to the implementation of Bulletproofs, which will allow for cheaper and faster transactions.
Furthermore, privacy coins hide some or all of their value transmitted on-chain so it’s impossible to determine their Network Value to Transactions (NVT) ratio accurately.
The benefit of using XMR over other privacy coins is a guarantee that the transactions are 100% private and confidential. This process occurs through the use of ring signatures, whereby any member of a group can produce a signature on behalf of the group, without revealing the individual signer’s identity. DASH and ZEC, as well as ETH to some extent, offer private or confidential transactions if needed or selected, as opposed to XMR’s approach.
Like most other coins, XMR’s hashrate and difficulty are sitting near ATH. CryptoNight, the proof-of-work (PoW) consensus algorithm used by XMR, had been application specific integrated circuit (ASIC) resistant until very recently. This meant that CPUs and GPUs were the best option for mining.
Now, ASIC manufacturers like Bitmain, Halong Mining, and Baikal have all hinted or announced miners for XMR. The ASICization of a cryptocurrency can mean the network becomes much less decentralized due to squeezing out miners with less hashing power. Furthermore, ASICs also allow for mining operations to scale quickly and efficiently.
In response to ASIC development, the XMR team has announced an emergency hard fork change to the PoW algorithm, stating they are “swiftly reacting to any potential threat from ASICs”. They add that ASICs are typically manufactured by only a few companies, creating a single point-of-failure for much of the network hashrate as well as the potential for whitelisting or blacklisting transaction addresses.
XMR regularly undergoes hard forks for updates, about once every six months. The XMR team has proposed regularly modifying the Cryptonight PoW hash every scheduled fork to further combat ASIC encroachment. It is possible that, similar to the ETH and ETH Classic split, that XMR Classic will live on thanks to the ASICs released or in development. There has been some discussion on the XMR github regarding an ASIC-friendly chain.
The MoneroV airdrop scheduled for April 30th is not affiliated with the Monero Core team in any way and offers little to no changes or improvements from the original Monero chain.
XMR trading volume has been led by Bitcoin (BTC), the United States Dollar (USD), and the Korean Won (KRW) pairs. Highest volume by exchange include HitBTC, Poloniex, Binance, Bitfinex, and Bittrex. The KRW pair holds a ~4.6% premium – likely due to restrictive banking policies which make it difficult to arbitrage.
Usage of XMR outside of an exchange requires running a desktop wallet as no hardware wallet solutions currently exist, unlike DASH or ZEC. Limited ability to store XMR does dampen its adoption beyond use for speculation and specific transactions. Institutional investors require custodial solutions that XMR is not compatible with at this time.
XMR has remained in a relatively trendless US$200 range since early this year. Ichimoku Cloud, EMAs, and Pitchfork can help assess the trend transition or interim price action. Further background information on the technical analysis discussed below can be found here.
Ichimoku Cloud metrics on the daily chart, using singled settings (10/30/60/30) for faster signals, are bearish; Price is below Cloud with a fresh bearish Kumo twist and TK cross. Price has also cleanly broken the yearly pivot support. The next likely bounce target would be US$150-$200 based on previous consolidation and wick support at that level (green rectangle). A long entry is not likely to occur anytime soon.
Ichimoku Cloud metrics on the daily chart, using singled settings (20/60/120/30) for more accurate signals, are also bearish; Price is below Cloud with a fresh bearish Kumo twist and TK cross. Price will likely return to the Kijun at some point in the near future to test resistance. The further Price moves away from the Kijun, the higher the likelihood this mean reversion will occur. It is not possible to determine if this will occur before or after a support test around the US$150-$200 zone.
On the twelve hour chart, a Pitchfork can be drawn on the daily chart using three anchor points to demonstrate a diagonal trading support and resistance zone. The median line (red) represents mean reversion of trend. The top diagonal zone represents overbought territory and the lower diagonal zone represents oversold territory. Price has begun to close several candles outside of the Pitchfork, suggesting an end to the previous bullish trend. A bearish 50/200EMA cross would be the first since before May 2017.
On the four hour chart, a bearish 50/200EMA cross preceded a failed W double bottom. There is currently an RSI and volume bullish divergence suggesting the bearish momentum is waning. Retest of the US$150-$200 zone may result in a reversal pattern similar to the inverted head and shoulders which developed in early February. A long entry would not trigger until price breaks the 200EMA resistance or a bullish recross of the 50/200EMA occurs.
All metrics on the four hour Cloud have also been bearish since the Kumo breakout on March 8th. A long entry would not be warranted until a bullish Kumo breakout, which will not likely occur for at least a week based on the current position of the Cloud.
Lastly, the XMR/BTC pair has sat in a wide ranging bullish trend since breaking highs in September 2016. Price again found the top of the channel as resistance. A retracement to the lower quartiles around ~0.018BTC is not unlikely based on the prior range.
Despite being one of the few options currently available for a private and confidential transaction, XMR is slightly behind its competitors on the protocol layer. These concerns are set to be addressed in the upcoming scheduled hard forks. The XMR development team also remains vigilant and defensive against ASICs which threaten to centralize the network’s hashrate.
Technicals suggest the beginning of a bear trend with a likely test of the US$150-$200 zone. If regulatory scrutiny on cryptocurrencies does increase dramatically, expect privacy coins like XMR to surge in value as an exodus from the potential invasion of privacy. This event, should it occur, will easily be seen on the XMR/BTC pair, which will drastically increase in value.
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