NEO Price Analysis - Diminutive on-chain activity and a high degree of centralization
NEO (NEO) is a decentralized smart contract network which is currently 21st on the BraveNewCoin market cap table. NEO is down 96% from the record high established in January 2018, with a current market cap of US$520 million, and a total of US$184 million in trade volume over the past 24 hours.
A quick comparison between coins using similar consensus mechanisms shows that NEO is in the middle of the pack for most metrics shown below. NEO leads in total daily transaction volume and is last in Git commits over the past year. Reliable on-chain transaction volume data or active addresses for EOS (EOS) could not be obtained.
The NEO project was previously known as Antshares and founded by Da Hongfei and Erik Zhang. The project was hailed as the “Ethereum of China.” An Initial Coin Offering (ICO) was run from August 8th to September 7th, 2016, which raised US$97,517 and 8,169 BTC. The ICO created 100 million NEO tokens, with 50% split between the crowdfund participants and 50% distributed to the NEO Council (now the NEO Foundation).
The Foundation released a financial report in December 2019 revealing holdings of US$378 million, including; NEO assets, non-NEO assets, and fund assets. NEO assets accounted for 42.8 million NEO tokens, currently US$306 million, which is just under 45% of the assets total supply. The non-NEO assets held by the Foundation include BTC, ONT, ONG, USD, and CNY, accounting for US$41.4 million. Fund assets include 4,567 BTC, which is currently equivalent to US$30.8 million.
NEO uses Delegated Byzantine Fault Tolerant (dBFT) for consensus, which yields 15-20 second block times. The network nodes are separated into two categories: consensus nodes and user nodes. There are currently seven consensus nodes, five of which are run by the NEO Foundation. The Foundation has planned to decentralize these nodes for over a year with no further progress.
The nodes are delegated by the network and earn a cryptocurrency called GAS through the block reward. Other nodes are simply users of the network. User nodes can earn GAS by holding NEO in a wallet, a process similar to staking. NEO GAS is used to interact with the network and is comparable to Ethereum GAS and EOS RAM.
On the development side, There are 19 NEO repositories on Github with 298 commits in the main repo over the past year, mostly from Erik Zhang and Shargon. The majority of projects in the crypto industry use the developer community of GitHub, 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.
Last year, NEO revealed a roadmap of network upgrades leading into 2020, aimed at alleviating longstanding network issues and improving network efficiency. The upgrades are also designed to expand the smart contract ecosystem by reducing deployment and execution costs. The network upgraded to dBFT 2.0 in May 2019, which provided improved network stability and adjusted the network fee mechanism. An updated roadmap could not be obtained.
Thus far, NEO smart contracts have had a tough start. In October 2018, smart contract audits found major code vulnerabilities in NEO NEP-5 contracts, which are most commonly used for ICOs on the NEO network. One flaw allowed users to artificially add to the total supply of a major NEO project, Deepbrain chain, by transferring their tokens to an unspecified address. In a bid to bolster the NEO ecosystem, Hongfei announced a US$100 million funding initiative in mid-May 2019, designed to help Decentralized Applications (dapps) and infrastructure development.
In contrast to other dApp platforms Ethereum (ETH), Tronix (TRX), EOS (EOS), Ontology (ONT), IOST (IOST), WAX (WAX) Waves (WAVES), LOOM (LOOM), and VeChain (VET), the NEO dApp ecosystem has struggled to bring any highly successful projects to market thus far. Funding on each platform for dapps shows that NEO is heavily lagging ETH, TRX, and EOS. However, the majority of dapps on any platform have very little user activity. The most popular across these various platforms are either gambling or exchange related.
On-chain metrics reveal the number of NEO transactions per day (line, chart below) has continued to decline since May 2018 and now sits in a multi-year range. Since October 2018, average transactions per day have ranged from 14,000 to 56,000. Average transaction values (fill, chart below) have also declined since September 2017 and now sit in a multi-year range. Since April 2018, average transaction values have ranged from US$5,000 to US$50,000.
The 30-day Kalichkin network value to estimated on-chain daily transactions (NVT) ratio (line, chart below) is currently 15 and flat, returning to the previous multi-year range. An NVT below 4.0 would likely indicate organic and sustained bull market conditions.
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.
Active and unique addresses are also important to consider, specifically when determining the fundamental value of the network based on Metcalfe's law. Monthly active addresses (MAAs) have declined since February 2018 (fill, chart below), and now sit at a multi-year low. A consistent and sustained decrease in MAAs paints a bearish picture for any asset.
NEO exchange-traded volume has been led by Tether (USDT), Bitcoin (BTC), and Ethereum (ETH). NEO trading is available on Binance, Binance.US, Bitfinex, Bittrex, HitBTC, Huobi, and OKEx but the asset is not currently listed on Coinbase, Gemini, Kraken, or Poloniex. In February, Binance also launched a NEO/USDT perpetual futures product with up to 50x leverage. OKEx followed in March by adding NEO/USD and NEO/USDT perpetual swap products with up to 20x leverage. Additionally, NEO hardware wallet functionality is available on Ledger but not Trezor.
Technical Analysis
As NEO moves up with the rest of the market, a potential bullish reversal has emerged. Exponential moving averages, pivots, the Volume Profile of the Visible Range, divergences, and the Ichimoku Cloud can help highlight a future roadmap. Further background information on the technical analysis discussed below can be found here.
On the daily NEO/USD chart, the 50-day Exponential Moving Average (EMA) and 200-day EMA crossed bullish on February 2nd, which was quickly followed by a bearish Death Cross on March 15th. The previous Golden Cross also experienced muted bullish momentum after being denied at the US$20 level. Yearly resistance pivot resistance and support now reside at US$12.00 and US$3.30, respectively.
Based on the Volume Profile Visible Range (VPVR - horizontal bars, chart below), the current spot price now sits below the US$7.00 - US$10.00 resistance node. There is no significant VPVR support below the current price. Additionally, there are no bullish or bearish divergences on RSI or volume at this time.
Long/short open interest on Bitfinex (top panel, chart below) is currently net long, with longs decreasing substantially on March 12th. A further significant price movement downwards will result in an exaggerated move as the long positions will begin to unwind. This is known as a "long squeeze."
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 bearish; the spot price is below the Cloud, the Cloud is bearish, the TK cross is bearish, and the Lagging Span is below the Cloud and near the current spot price. The trend will remain bearish so long as the spot price remains below the Cloud. A long flat Kumo at US$10.35 should act as a magnet for price.
Lastly, on the NEO/BTC pair, trend indicators are also bearish. The spot price is below the 200-day EMA and the daily cloud. Again, a long entry will not trigger until the spot price is above the Cloud and the 200-day EMA. Since 2018, NEO/BTC has only had two bullish Kumo breakouts and has mainly held below the 200-day EMA.
VPVR (horizontal bars) suggests significant upside resistance from 0.0015 - 0.0030 BTC. There is no significant VPVR support below the current price. Yearly resistance pivot resistance and support now reside at 0.0016 BTC and 0.00044 BTC, respectively. Additionally, there are no bullish or bearish divergences on RSI or volume at this time.
Conclusion
As NEO continues a transition period towards NEO 3.0, on-chain metrics have continued to decline or range over the past two years. Comparing NEO to other similar chains reveals weaknesses in almost every metric observed except for on-chain transaction volume, which remains elevated relative to other chains. In its current state, NEO appears to be much farther behind its smart contract competitors while maintaining high levels of centralization. However, the NEO project has plans to eventually implement decentralized consensus nodes and will likely continue to easily sustain itself due to the well-funded NEO Foundation.
Technicals for both the NEO/USD and NEO/BTC pairs suggest a bearish trend. Until spot prices are once again above both the 200-day EMA and Cloud for both pairs, a bearish trend continuation is likely over the next few weeks. Since early 2018, both pairs have mostly continued to drift downward with very little bullish momentum. Downside support for NEO/USD sits at US$6.00 and NEO/BTC sits at 0.000888 BTC.
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Josh Olszewicz, Khareem Sudlow