Why the Ethereum Pull-Back is a Strong Buy

The Masters in Trading Tooling and Data team has been busy crunching numbers. We've found something quite interesting about Ethereum, more specifically, the price of Ether (ETH).

As of November 18 2021, the ETH/USD price has corrected from $4,867 on November 10, 2021 to $4073 as of the writing of this article. This is a -16% correction that's taken place over the past 9 days.

Last time ETH corrected in similar fashion was during early September 2021. A correction that lasted 19 days.

A paramount facet of Ethereum is the Ethereum network itself. To quantify this, I'll reference the Ethereum Network Hashrate.

Some Background on Ethereum

As of the current Ethereum protocol, miners are needed to allow transactions to take place within the Ethereum network. Thus, a growing network hashrate represents a growing Ethereum ecosystem, and a growing ability to process transactions without congesting the network (a non congested Ethereum network hasnt been seen in a LONG TIME…its always congested due to all the transactions).

The network grows as new miners come online and contribute their miner's hashing power to the network. A rising hash rate is a direct result of miner sentiment towards Ethereum.

If you study a chart of the price of ETH and compare it to a chart of the Ethereum network's hash rate, what you'll find is that they have been correlated since the very beginning of Ethereum. And it makes sense too – the folks involved with Ethereum at the mining level arguably have skin in the game, both in the form of the mined ETH and also in investments made for mining equipment. Miners tend to have insights that come from getting involved with Ethereum from a more technical / lower-level than a user of Ethereum.

During the September price correction, something VERY important took place, and I don't think most have caught on. Its been happening ever since September.

The miners effectively “bought the dip” in ETH by virtue of adding new capacity to the network (the more hashing capacity each miner provides, the more ETH the miners gets – this is an oversimplification, but enough for the topic of this article).

The result of this was the breakdown of the correlation between the price of ETH and the network's hashrate. The ETH price was moving lower, yet the network hash rate kept growing every day (more mining rigs coming online).

Keep in mind that mining equipment is VERY expensive today due to shortages in the industry, and what seems to be an overall re-pricing of GPU cards. No longer can GPU cards be found for MSRP prices. In fact, the standard recently across ALL avenues for procuring them is that the GPU costs roughly what it would produce mining ETH for 1 year (on average).

So why would a large cohort of people decide to get a bunch of expensive equipment and begin mining ETH even as its price declines day after day?

Compare this to the correction from May 2021. Notice that during this correction (-60%) – 70 days from peak to bottom – the hash rate dropped and remained much lower than what it was during the peak in ETH price during May. But as soon as the hash rate started rising in late July 2021, so did the price of ETH. It could be seen the other way around – the price of ETH started moving higher, and miners jumped in.

Regardless of which one occurred first, the important part is that ETH miners have been “buying these dips” aggressively – and thankfully this data is publicly available for anyone to see (live!)

A Bold Prediction for Ethereum

The current hash rate of the network is about 39% higher than the hash rate we had during May's peak. Yet we find the price of ETH to be approx the same it was back then (the day it peaked) ~ about $4000.00.

Purely based on the network's capacity, and not taking into account ANY other bullish technicalities, the price of ETH should be at least $5,560.00. Why? Because its 39% higher than the current price. This price would “close the gap” that formed when the correlation between the price of ETH and the Ethereum network's hash rate first broke down in September 2021.

Since September, each dip has been met with buying pressure – resulting in higher ETH prices.

Masters In Trading's Tooling and Data team sees no difference with the current correction. This is a buying opportunity! Note: should the hash rate of the network begin to drop a few days in a row [unlikely] , then most likely we will see lower prices in ETH. However, if the miners keep adding as they've been doing all along [REAL], a lower ETH price is somewhat of a gift!