SixJupiter’s Ethereum Transactional Money Supply, which we’ve previously defined, is part of our toolbox for understanding the price trend in Ether and identifying resulting investing/trading opportunities. As we noted in our initial post, we noted that a temporary spike in M1, especially if coupled with a corresponding spike in price, could indicate exhaustion of the prevailing price trend and thus set the stage for a reversal — and a corresponding trading opportunity.
In this post we suggest that there may be some evidence to suggest precisely this situation occurred in late December of 2018. As the chart below shows, we saw M1 start to rise from November 20 — when we first created the Ethereum Transational Money Supply indicator — all the way through the end of the year. During this time, it also traded places with M2 in terms of proportional size. One interpretation of this shift is that during this time Ether in M2 wallets transacted, thus putting them in the M1 cohort, and that they did so to sell Ether. This thesis is buttressed by the price action in Ether, which saw a sharp decline in December, followed by a stabilization in the new year.
If we drilldown a bit further into the details and explore where the whales are — the top .01% of Ethereum wallets, which account for about 71% of the total Ethereum Transactional Money Supply (ETMS) — we see that M2 whales shifted into the M1 cohort in December, before their positions reversed again in January. It is worth noting as well that M3 whales have steadily grown over this time period, which suggests that a growing component of the money supply remains committed to the overall market; approximately 17.5% of the total ETMS is now in M3. From this one may surmise that M2 whales have been shaken out of the market, and as such, the selling pressure is exhausted — thus setting the stage for a potential reversal. The charts below elaborate.
Price has retraced a bit from its mid-January high. If December M1/M2 reversal revealed exhaustion of M2 bulls, this may be an opportunity to buy with limited risk. Alternatively, if new lows are reached, it may be worth seeing if it is causing any movement in the M3 money supply.
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