Monero Price Analysis – Living up to promises
Monero (XMR) has continually made new highs over the past month, and now holds a market cap of US$3.88 billion with US$310.8 million in trading volume over the past 24 hours. The coin has risen 1600% since January of this year.
XMR is a SHA-256 Proof-of-Work coin launched in 2014 by thankful_for_today on BitcoinTalk. Early development decisions in 2014 were not approved of by the community so seven members of core development team, led by Riccardo Spagni, aka FluffyPony, forked to create the coin we know today.
The coin has a two minute block time with dynamic block size limit based on usage. XMR also regularly hardforks for updates, about once every six months. Unlike Bitcoin, XMR is not deflationary. After 18.4 million coins are mined, the calculated block reward drops below 0.3 coins per minute and the block reward holds at 0.3 coins per minute indefinitely.
XMR uses ring signatures to mask the sender and receiver of each transaction. The system is based on the CryptoNote protocol, which also uses a consensus algorithm that mixes CPU and GPU mining. This system makes the coin ASIC-resistant.
All possible XMR senders referenced in the transaction are equiprobable, and there is no way to determine the exact private key used for signing a transaction, while the receiver generates a new public key for each transfer. Using this method, all transactions are completely confidential.
Despite Bitcoin’s seemingly anonymous nature, addresses are actually pseudo-anonymous. All transactions are openly stored on the blockchain and identities can be associated with addresses and transactions using chain analysis. Truly confidential transactions are 100% amoral, they are essentially returning to the untraceable nature of cash, although they do make criminal activity easier. They also guarantee 100% fungibility to all coins, making each coin and transaction indistinguishable from one another. A lack of fungibility may one day lead to coin blacklisting and advertising based transaction spending.
Other privacy focused coins include DASH and ZEC, both of which use an opt-in method for confidential transactions. It was recently discovered that private transactions on ZEC are able to be linked to non-private transactions unless the sender and receiver are part of the “shielded pool” of anonymous transactions. Only 3.5% of the available coins meet this criteria.
Of the three privacy coins, XMR holds a market cap in the middle of the pack, while it has the fewest transactions. However, both DASH and ZEC include non-confidential transactions as well.
Privacy focused coins hide some or all of their value transmitted on-chain so it’s impossible to determine their Network Value to Transactions (NVT) ratio accurately. The metric was devised by Willy Woo and Chris Burniske and is similar to the traditional Price to Earnings ratio when selecting stocks. XMR does have a consistently larger block size to ZEC and DASH despite having a faster block time than either coin.
XMR trading volume has been led by Bitcoin (BTC), Korean Won (KRW) and the United States Dollar (USD) pairs on Poloniex, Bithumb, and Bitfinex respectively. The KRW pair holds a large premium, as is currently typical with all crypto assets. This is likely due to restrictive banking policies which make it difficult to arbitrage.
After a multi-month consolidation period on descending volume, price broke through a bull pennant. The break of the pennant coincided with a Kumo breakout on the daily doubled Cloud chart and a bullish breakout of Bollinger Bands. All Cloud metrics flipped bullish on the following candle with a bullish TK cross.
Although Bollinger Bands do not necessarily predict the direction of a breakout, but rather when to expect volatility, price below the 20SMA for an extended period of time did suggest a bearish outcome.
Nevertheless, a trade triggers on the breach of the bands in either direction, and in this case proved to be an excellent entry. Price has walked up the bands since the breakout, suggesting strong bullish continuation. If price makes a higher high but does not move further outside the bands, a type of bearish divergence forms which can be seen on the %B indicator (not shown).
The daily chart using singled settings for quicker signals also showed a Kumo breakout on the same day, and continues to show a strong bull trend. Stop losses for any active longs here are likely near the US$140 level.
A Pitchfork can be drawn on the daily chart using three anchor points to demonstrate a diagonal trading range. The median line (red) represents mean reversion of trend. The top diagonal zone represents overbought territory and the lower diagonal zone represents oversold territory, according to the trend. Price is now returning to mean reversion around US$380+.
On the four hour chart using doubled cloud settings, all Cloud metrics remain bullish with Kijun support at $210. A long entry signal triggered on the bullish TK recross above the Cloud (yellow), the strongest signal of bullish continuation in the Cloud system.
On the daily XMR/BTC chart, there is an active Edge to Edge trade which triggered a few days ago with a target of 0.023BTC. Leading up to the Edge to Edge trigger was a bullish pennant that was preceded by a hidden bullish divergence with a higher low in price and a lower low on RSI. This divergence had been building for a month and illustrates the importance of waiting for a divergence to confirm before taking action.
Although each low has had a significant retrace, consolidation and rejection of a previous horizontal extreme low is the better of those three signals. The option here would have been to take the long after each bullish reversal candle with stop losses at new lows.
Lastly, there is a longstanding Pitchfork, beginning in 2015, which has held price on several support and resistance points. Price has bounced from the buy zone and is moving back towards mean reversion at 0.038BTC.
With the development of many coins focusing on private transactions, privacy specific coins may have little to offer moving forward. Of the existing privacy coins, XMR is the only large market cap coin that appears to live up to its promises. The development and community around XMR continues to grow, and will only continue to gain attention with prices at these levels.
Technicals are highly suggestive of trend continuation with pit stops at 0.023BTC and 0.038BTC. The BTC/USD ratio has entered pure unadulterated price discovery and will very likely consolidate above US$380.
Coin photo via Getty Images