Ethereum ATVWAP

Ethereum ATVWAP
ETHEREUM ATVWAP
07.01.2019
ALL-TIME VOLUME WEIGHTED AVERAGE PRICE
CHRISTIAN OTT
AUTHOR
Introduction
Recently, I put a spotlight on using the all-time volume weighted average price (ATVWAP) to evaluate, whether the price of Bitcoin is overbought or oversold (find the detailed article here: Bitcoin ATVWAP). It is basically an average daily price, with every price point being weighted by its daily trading volume. The ATVWAP is not limited to BTC though, it also offers interesting insights for the price of other cryptocurrencies. In this article, it will be applied to the second highest ranked cryptocurrency on CoinMarketCap, which is Ethereum.

Trading Volume
Ethereum has been traded publicly for the last 3.5 years. Similar to Bitcoin, Ether’s trading volumes have gone up significantly over time. While just 835k ETH were traded on a daily basis in 2015, this number increased to 6.7 million ETH in 2018. Lately, the market showed tremendous interest in trading Ether, with a daily trading volume of 21.2 million ETH in December 2018. Consequently, the ATVWAP should better indicate a fair price of Ether than the average price does, because way more investors agree to buy and sell Ether in 2018, than they did in 2015. The rising volume can be seen in the following chart:
ETHEREUM(IN ETH)AVG. DAILY TRADING VOLUME OF01M2M3M4M5M6M7M2018201720162015
Ethereum ATVWAP (in USD)
During these 3.5 years of public trading activity, ETH went from lows around 0.5 USD all the way up to 1400 USD. During the course of 2018 however, Ether has seen its biggest decline. When it hit 82.83 USD on 2018-12-15, it was down 94.2% from its previous all-time high. At that point, many people were screaming for Ether to go even lower, but it has recovered a little instead and went up to the 150 USD range again. Ether’s price movements should provide interesting data to apply it to the ATVWAP.

Although before calculating the ATVWAP, we have to consider Ethereum’s initial distribution method. Ethereum held an ICO in 2014, where it raised 31,538 BTC.1 It can be assumed, that purchases of ETH were made for 2000 ETH per 1 BTC,2 indicating that 63 million ETH were sold in the crowdsale for approximately 0.3 USD per ETH. Why is that important for calculating the ATVWAP? Alongside the public trading data, it also makes sense to integrate data from a crowdsale into the ATVWAP, to add the price difference between token issuance and first exchange listing into the equation. The result is displayed in the following chart:
ETHER(IN USD)ALL-TIME VWAPATVWAP (USD)VOLUME(ETH)DailyPrice (USD)2016201720180.15$1.5$15$150$1.5K$
As the chart shows, ETH’ price action was very bullish from its ICO onwards to the end of 2017. After listing 10x above its ICO price on public exchanges, it dropped down to 0.5 USD, but stayed above its ICO price of 0.3 USD. Later on, it went up from 1 USD to 15 USD in the first 75 days of 2016 and stayed in the range of 7-15 USD for almost a year. Then, from the beginning of 2017 on, ETH had its biggest run up from under 10 USD all the way up to 1400 USD, followed by a massive price decline in 2018. Now, which role does the ATVWAP play?

There are some interesting similarities between how Bitcoin’s and Ether’s price behaved towards its ATVWAP. We had seen, that Bitcoin had a massive run up two times and after that hovered around the ATVWAP for months (in 2012 and 2015). Similar to that, ETH hovered around its ATVWAP after two run ups. The first occasion where this happened, was during the last months of 2015. After being issued for 0.3 USD in its ICO, ETH reached 3 USD on exchanges and later consolidated in the 0.8 – 1 USD range, while its ATVWAP was at 0.75 USD. The second occasion, in which the ETH price hovered around its ATVWAP, was at the end of 2016. After having failed to pass 15 USD on multiple attempts in 2016, ETH went down to the range of the ATVWAP again in December 2016, which was at that time at 7.8 USD.

After its major run up in 2017 however, ETH declined below its ATVWAP value and has stayed below since August 2018. Its ATVWAP had been as high as 304 USD in August, but due to ETH having stayed below for several months with way higher volume than before, its ATVWAP has already declined down to 250 USD. Accordingly, we have yet to see a longer consolidation period around the ATVWAP value, which would only be the case, if ETH behaves similar to both previous occasions.

Ethereum ATVWAP (in BTC)
To be honest, I am not totally satisfied with calculating the ATVWAP of Ether in USD. The whole crypto market somehow rises and falls with BTC and an USD chart therefore contains unwanted correlations with Bitcoin’s USD value. I think measuring the ATVWAP of Ether in Bitcoin shows more interesting patterns than the USD chart, but is also less intuitive to understand, since most people might rather measure value in FIAT than in BTC. Let’s have a look at the chart:
ETHER(IN BTC)ALL-TIME VWAPATVWAP (BTC)VOLUME(ETH)DailyPrice (BTC)201620172018.00025.0025.0250.25
Ethereum’s price movement against BTC over the past 3.5 years is very interesting. It had three major pumps and massive declines after that, but it could establish a higher support level after every pump. It can also be noticed, that each time ETH had a major decline, it went below its ATVWAP value, only to snap back above it after a while again. Moreover, every time it climbed back up above the ATVWAP level, ETH had a parabolic move upwards. Following the massive decline in 2018, ETH seems to surge to its ATVWAP level again, but if we see a parabolic move upwards after it managed to get above its current ATVWAP level of 0.044 BTC remains to be seen.

Wrap-up
In this article, I discussed the all-time volume weighted average price (ATVWAP) as a method to analyze Ethereum’s price. While it is both possible to analyze ETH’s price in relation to its ATVWAP in USD and BTC, analyzing the price in BTC appears to be more promising, because it includes less correlation with Bitcoin’s price in USD. The chart shows, that ETH had three declines below its ATVWAP value (in BTC) in the past, but always managed to climb back up again, followed by a parabolic move upwards. Currently, it trades below the ATVWAP for the fourth time, but seems to be on its way to recovery again and might touch its current ATVWAP value in the near future.



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Sources
1
Ethereum received 31,538 BTC in their crowdsale in 2014.
Bitcoin Blockchain; 36PrZ1KHYMpqSyAQXSG8VwbUiq2EogxLo2; 06.01.2019
2
“Data was taken yesterday, when we had 24000 BTC, and assumes that all purchases were for 2000 ETH / BTC (an assumption that is not strictly true, but the error term is sufficiently tiny that it can safely be discounted).”
Vitalik Buterin; Ethereum Blog; Ether Sale: A Statistical Overview; 08.08.2014