Tezos Price Analysis - Price discovery following consistent gains
Tezos (XTZ) is a decentralized smart contract and application network, with an on-chain governance layer designed to enable efficient network upgrades and provide a transparent stakeholder community. The asset is currently 10th on the BraveNewCoin market cap table, with a market cap of US$1.85 billion, and US$96 million in trade volume over the past 24 hours.
A quick comparison between coins using a staking mechanism shows XTZ leading by market cap and total daily transaction volume. XTZ is near the bottom of the group in all other categories. The XTZ real staking yield, or staking yield minus inflation, is currently +1.30%.
EOS (EOS) was excluded from the on-chain data comparison due to a lack of currently available reliable on-chain data.
Portions of the XTZ model were first conceived by Gordon Mohr and L.M. Goodman in late 2013 and early 2014. Kathleen Breitman and Arthur Breitman released the first Tezos position paper and white paper in late 2014.
Initial development started in the setting of both Bitcoin and Ethereum scaling and governance disputes. The project went on to secure funding in 2016, which was provided by Polychain Capital. Notable advisors include Emin Gün Sirer and Zooko Wilcox of Zcash.
The Switzerland-based Tezos Foundation was created in April 201,7 with the goal of providing support to XTZ, related technologies, and the XTZ community. The project’s initial coin offering (ICO) occurred from July 1st to July 13th, 2017 when each token was sold for US$0.47. The ICO raised a total of 65,000 BTC and 325,000 ETH, or US$232 million, which made it one of the largest ICOs at the time.
As of August 2019, the Tezos Foundation holds a reported US$652 million in mixed assets; 61% in BTC, 15% in XTZ, 15% in bonds, ETFs, and commodities at Swiss banks, 6% in fiat, and 3% in other assets. A more recent report on the Tezos Foundation financials could not be obtained.
Following the ICO, a dispute between then Tezos Foundation president Johann Gevers and the Breitmans pushed initial development back multiple months. Additionally, in October 2017, a class-action lawsuit was registered against Tezos in the Superior Court of California, citing "violation of the registration and anti-fraud provisions of the federal securities laws, as well as state false advertising, and unfair competition laws."
In June 2018, Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements were announced, which included user identity information that wasn’t initially collected during the ICO. The genesis block was also completed in June 2018, when 608 million XTZ were created. There is currently no limit on the total supply. The mainnet went live in September 2018 with ICO tokens unlocking in November 2018.
In late January, the Tezos Foundation announced a third round of ecosystem grants, for 21 new projects. These funded proposals involve applications built using XTZ smart contracts, tools for smart contract development, educational or training resources, and marketing materials.
The Tezos ledger uses a delegated Proof of Stake consensus mechanism with a target block time of one minute and current annual inflation of 5.38%. Nearly 78% of the current circulating supply is participating in staking, or ‘baking’ on the XTZ chain, which is among the highest total USD value of all Proof of Stake (PoS) chains.
Tokens need to be delegated to a baker to earn block rewards. There are seven exchange bakeries, with Coinbase holding the lion’s share. In total, just over 15% of the Tezos circulating supply is held on exchange bakeries. Initially, bakers needed at least 10,000 XTZ, or US$29,100 at current prices, to become a delegate. Users with less than 10,000 XTZ could also participate in staking through delegation services.
Bakers can manage XTZ nodes and participate in protocol amendments, as well as software updates and patches. Bakers also charge delegators for their services as network amenders and block producers. At the beginning of each cycle (4,096 blocks or about three days), the Bakers for each block are randomly selected and published. Bakers earn a block reward of 16 XTZ for baking a block. In addition to the Baker, 32 Endorsers are randomly selected to verify the last block that was baked. Endorsers receive 2 XTZ for each block they endorse.
Protocol amendments are adopted over election cycles that are 131,072 blocks long, or roughly three months. Amendments are only voted on by the community, and not by the Tezos Foundation. In late May, the XTZ community voted to activate Athens, the first XTZ on-chain governance proposal. Athens increased the gas limit to allow for larger transaction throughput and reduced the minimum amount of XTZ required to bake, from 10,000 XTZ to 8,000 XTZ.
The Babylon 2.0 amendment was implemented in October. The Babylon upgrades include; changing the consensus algorithm to Emmy+, which makes smart contracts in the scripting language Michelson easier to write, distinguishing accounts from smart contracts, and changing quorum floors and caps.
The next amendment, Carthage, is currently being discussed. The update would increase the gas limit per block and per operation by 30%, improve the accuracy and resiliency of the formula used for calculating baking and endorsing rewards and fix various small issues
On the network, the current total number of transactions per day (line, chart below) has continued to slowly increase over the past year. Average transaction fees (fill, chart below) have also continued to increase in this same period, and are currently US$0.0034. Average transaction values have ranged from US$200 to US$6,000 over the past 15 months (not shown).
The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) is currently 136, falling, and near the middle of the historic norm. Inflection points in NVT can be leading indicators of a reversal in asset value.
An uptrend in NVT often suggests a coin is overvalued based on its economic activity and utility, which should be seen as a bearish price indicator, whereas a downtrend in NVT suggests the opposite. NVT below 100 typically indicates organic and sustained bull market conditions.
Active and unique addresses also are important to consider, specifically when determining the fundamental value of the network based on Metcalfe's law. Monthly active addresses (MAAs) have continued to increase since January 2019 (fill, chart below). In November 2018, addresses spiked due to the release of the claimed tokens from the ICO. A consistent and sustained increase in MAAs paints a bullish picture for any asset.
The XTZ project is programmed in OCaml with the main repo on GitLab recording nearly 1,500 commits over the past year (shown below). As of last year, the Tezos Foundation reported 1,338 developers have completed or are working to complete the Tezos training course.
Most coins use the developer community of Github or GitLab where 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 and interest.
In the markets, XTZ exchange volume has been led by the Tether (USDT), Bitcoin (BTC), and USD pairs on OKEx, Binance, Coinbase, and Kraken.
XTZ was listed on HitBTC in July 2017, Gate.io in July 2018, Bitfinex in September 2018, Kraken in October 2018, Huobi in December 2018, Coinbase and eToro in August 2019, Binance in September 2019, OKEx in November 2019, and Bittrex in December 2019. Bitfinex also added XTZ/USD and XTZ/BTC margin pairs in August. XTZ is not currently listed on Gemini or Poloniex.
Binance, Coinbase, Coinone, Gate.io, Kraken, Kucoin, OKEx, and the Trezor and Ledger hardware wallets provide staking support for XTZ.
Worldwide Google Trends data for the term "tezos" increased slightly beginning in March 2019, around the voting of the Athens amendment, which is also reflected in the price of the asset. The July 2017 spike in “tezos” searches corresponds with the project’s ICO. The most recent search spike corresponds with the large increase in price over the past few weeks.
Google Trends data has been found to have some correlation with crypto prices. A 2015 study found a strong correlation between the Google Trends data and BTC price, while a 2017 study concluded that when the U.S. Google "bitcoin" searches increased dramatically, BTC price dropped.
Technical Analysis
On the daily chart for the XTZ/USD pair, the 50-day Exponential Moving Average (EMA) and 200-day EMA crossed bullishly on November 18th, and a 178% bull rally has followed. Volume has also increased significantly over the past two weeks as the spot price broke the US$2.00 psychological resistance. Historical volume support (horizontal bars, chart below) shows support at US$1.32 with no resistance above the current price level.
Bitfinex open interest is 62% short (top panel, chart below), with short positions rising rapidly and reaching an all-time high earlier this week. Long positions are also at an all-time high. A significant price movement upwards or downwards will result in an exaggerated move as these positions will begin to unwind. Although volume or RSI does not currently hold a bearish divergence, RSI is currently 90, indicating extremely overbought conditions.
Turning to the Ichimoku Cloud, four metrics are used to indicate 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.
Cloud metrics on the daily time frame, with doubled settings (20/60/120/30) for more accurate signals, are currently bullish; the spot price is above the Cloud, the Cloud is bullish, the TK cross is bullish, and the Lagging Span is above the Cloud and above price. Price is currently 41% above the Kijun, which is suggestive of overbought conditions.
On the daily chart for the XTZ/BTC pair, the spot price broke above both the 200-day EMA and daily Cloud on November 7th, leading to a 108% bull rally. Price returned to the 200-day EMA on January 16th and has since led to a 95% bullish rally. Cloud metrics are also currently all bullish, with the spot price 31% above Kijun.
Although the RSI does not currently hold a bearish divergence, it is currently 85, indicating extremely overbought conditions. Historic volume support sits at the psychological zone of 20,000 sats. Bitfinex open interest is 82% short and primed for a short squeeze if prices move higher. Price may need to reconsolidate near the all-time high zone before further attempts at higher highs.
Conclusion
After a rocky start, Tezos enters a crowded field of PoS coins with the hopes of solving crippling governance issues which have previously plagued both Bitcoin and Ethereum. Fundamentals reflect a nascent chain with rising daily transactions and increasing active addresses over the past year.
The high percentage of staked circulating supply, at nearly 80%, may suggest there is not much else to do with XTZ currently, as smart contracts and dapps have yet to take hold. The high staking percentage is likely directly related to several exchanges and custody services allowing for staking participation. Currently, just over 15% of the XTZ circulating supply is held by exchange bakeries. Worldwide Google Trends paints an extremely bullish picture for the asset.
Technicals for the XTZ/USD pair are strongly in favor of a definitive bullish trend. Upside resistance sits at the psychological resistance of US$3.00 as the asset is currently in price discovery mode. A 1.618 fib extension drawn from all-time high to all-time low yields a potential price target of US$3.95. Strong price support currently sits at US$1.30 based on the daily Kijun and volume profile.
Technicals for the XTZ/BTC also suggest a strong but overbought bullish rally. Again, this pair sits high above both the daily 200-EMA and daily Cloud. Strong upside resistance sits at the all-time high range of 25,000 sats - 30,000 sats whereas support sits at the psychological level of 20,000 sats.
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Josh Olszewicz, Khareem Sudlow
