Due to a mix of fundamental and technical factors, I believe the price of ZEC has bottomed relative to ETH, which may lead to substantially higher ZEC prices in the near future.
Currently ZEC has relatively little use outside of speculation, which results in periods of intense demand and rapid price increases. Demand is particularly strong following news about ZEC, such as new exchange listings, but this demand eventually drops off when ZEC falls out of the news cycle. This demand imbalance means that the overall supply and demand dynamics of ZEC are particularly sensitive to miner activity, and whether the amount of newly mined ZEC being sold is greater than or equal to the current demand for ZEC at market price. An excess of supply at the current market price naturally leads to lower prices.
Miners are motivated entirely by profit, so their motive to sell ZEC must logically be incentivized by profit. GPU miners in particular have been known to switch between mining different algorithms in order to maximize their returns. Historically, AMD cards achieved their highest returns mining Ethash, while Nvidia cards achieved their highest returns mining Equihash. Miners with 1080ti's who wanted to accumulate Ether were better off mining ZEC and exchanging it for ETH, resulting in selling pressure on the ZEC/ETH pair. Due to the recent increases in Zcash network difficulty this is no longer economical and thus a significant source of selling pressure has disappeared.
Miners who accumulate coins rather than sell them may also be shifting from ETH to ZEC, as seen in the ZEC/ETH trading pair. The trading pair has been in decline since Zcash's inception, from highs of over 200 all the way down to 0.42 today. Miners who did not immediately sell mined ZEC for ETH (or BTC) missed out on huge profits. However, this trend may be coming to it's conclusion.
Looking at the ZEC/ETH chart, a large falling wedge pattern has formed over the course of the last 16 months. The pattern is well defined with no less than 5 reaction highs and lows, in addition to consolidating volume. The pattern saw a false breakout to the downside in January reaching a low of 0.33 on February 1st, followed by a strong move back above 0.5. The new low was tested in May, reaching 0.347 on May 13th, followed again by a quick move above 0.5 on huge volume. This event marks the breakout of the falling wedge pattern. Since that date, the trading pair has fallen back to test the upper trend line of the wedge, and has made what appears to be a triple bottom formation at 0.35. This pattern will be confirmed with a strong move above the 0.50 level on increasing volume.
Currently ZEC has relatively little use outside of speculation, which results in periods of intense demand and rapid price increases. Demand is particularly strong following news about ZEC, such as new exchange listings, but this demand eventually drops off when ZEC falls out of the news cycle. This demand imbalance means that the overall supply and demand dynamics of ZEC are particularly sensitive to miner activity, and whether the amount of newly mined ZEC being sold is greater than or equal to the current demand for ZEC at market price. An excess of supply at the current market price naturally leads to lower prices.
Miners are motivated entirely by profit, so their motive to sell ZEC must logically be incentivized by profit. GPU miners in particular have been known to switch between mining different algorithms in order to maximize their returns. Historically, AMD cards achieved their highest returns mining Ethash, while Nvidia cards achieved their highest returns mining Equihash. Miners with 1080ti's who wanted to accumulate Ether were better off mining ZEC and exchanging it for ETH, resulting in selling pressure on the ZEC/ETH pair. Due to the recent increases in Zcash network difficulty this is no longer economical and thus a significant source of selling pressure has disappeared.
Miners who accumulate coins rather than sell them may also be shifting from ETH to ZEC, as seen in the ZEC/ETH trading pair. The trading pair has been in decline since Zcash's inception, from highs of over 200 all the way down to 0.42 today. Miners who did not immediately sell mined ZEC for ETH (or BTC) missed out on huge profits. However, this trend may be coming to it's conclusion.
Looking at the ZEC/ETH chart, a large falling wedge pattern has formed over the course of the last 16 months. The pattern is well defined with no less than 5 reaction highs and lows, in addition to consolidating volume. The pattern saw a false breakout to the downside in January reaching a low of 0.33 on February 1st, followed by a strong move back above 0.5. The new low was tested in May, reaching 0.347 on May 13th, followed again by a quick move above 0.5 on huge volume. This event marks the breakout of the falling wedge pattern. Since that date, the trading pair has fallen back to test the upper trend line of the wedge, and has made what appears to be a triple bottom formation at 0.35. This pattern will be confirmed with a strong move above the 0.50 level on increasing volume.
Comment:
This idea ended up playing out very well, as ZEC climbed above 0.60 on the back of ETH's recent weakness. Previous resistence highs of 0.58 and 0.55 have been broken decisively, potentially completing the long-term triple bottom formation. While overall volume has generally been expanding during the recent move upwards, we have still yet to see the significant expansion in volume that would definitively confirm the triple bottom.
Due to a resurgence by ETH in the last two days, the momentum on the ZEC/ETH pair has weakened considerably. If ETH/USD continues to see strength, there should be a retrace on the ZEC/ETH pair back to the previous resistance highs. The biggest looming question is whether or not these previous levels of resistance have turned into support. I expect to see 0.55 touched within a few days, and perhaps as low as 0.52 depending on the relative strength of ETH vs. the overall crypto markets.
The validity of ZEC/ETH's triple bottom formation will be revealed by the behaviour of the pair when the afforementioned levels are tested. If support holds, then we should see a resumption of the upward move beyond 0.60 and expansion in volume. Previous targets of 0.65, 0.80 and 1.00 are still valid targets given a bullish scenario. Should those levels fail to hold support, I would expect further downside and exit the trade.
Due to a resurgence by ETH in the last two days, the momentum on the ZEC/ETH pair has weakened considerably. If ETH/USD continues to see strength, there should be a retrace on the ZEC/ETH pair back to the previous resistance highs. The biggest looming question is whether or not these previous levels of resistance have turned into support. I expect to see 0.55 touched within a few days, and perhaps as low as 0.52 depending on the relative strength of ETH vs. the overall crypto markets.
The validity of ZEC/ETH's triple bottom formation will be revealed by the behaviour of the pair when the afforementioned levels are tested. If support holds, then we should see a resumption of the upward move beyond 0.60 and expansion in volume. Previous targets of 0.65, 0.80 and 1.00 are still valid targets given a bullish scenario. Should those levels fail to hold support, I would expect further downside and exit the trade.
Traders who didn't enter this trade below 0.42 should be very cautious buying at these price levels as a retracement looks possible. There is some bearish divergence on the daily RSI. I would set a stop-loss around 0.43. With a move below 0.35, I would consider the falling wedge and triple bottom patterns completely invalidated. This is possible if ETH has enough positive price momentum and relative outperformance.
However, I'm not giving up just yet. We could still see a strong uptick in price preceding the launch of new Equihash ASIC miners. Manufacturers may wish to pump up the ZEC price to drive up sales if there isn't already enough demand at current prices. With ZEC prices in decline, ASIC buyers may be baulking at the 3000+USD price tag of these machines, some of which may never see ROI with the rising network difficulty.
Finally, I'm not counting out a one-off news event taking us above 0.55 on massive volume. This could take the form of an exchange listing announcement like Coinbase, or some kind of other unknown such as a corporate paternership or declaration of instituation investor interest. In that scenario, the obvious price targets are 0.65, 0.80 and 1.00.