by Jamie Holmes
Since August 9, tensions between North Korea and the US have intensified, with South Korean traders piling money into the cryptocurrency of the second largest blockchain network, Ethereum. ETH-USD breached the $300 handle and now finds support at this psychological level; we provide an outlook for the cryptocurrency going forward.
While markets across the world have shown increased volatility in response to the war of words, cryptocurrencies have remained fairly stable, incubated from any threat of a war on the Korean peninsula. The drama started on August 9, when a US report was released claiming that the North Koreans had developed a minature nuclear weapon.
US President Trump threatened the small, communist nation with “Fire and Fury,” while the North Koreans hit back with a warning of a strike on Guam, a US military base, which is the Westernmost edge of their influence in the Pacific. A retired Russian general, however, does not see the US taking the offensive, as North Korea would most likely target Seoul and US assets in retaliation. While the US army is much more powerful, morale and readiness for battle is suggested to be greater among the army of North Korea. China has also weighed in, stating that an attack on North Korea would not be permitted and it would not stand by and watch. On the other hand, it stated its neutrality in the event the US is attacked first.
While in times of geopolitical uncertainty, assets like gold, US Treasuries and the Japanese Yen are sought after by investors, cryptocurrencies are beginning to steal the show. While stock indices fell across the board, this new asset class is rising to prominence, and has shown stronger resilience than more recognized safe haven assets in the past week. With the Cyprus bail-in, Brexit, and now the threat of another war breaking out, cryptocurrencies seem to be cementing their place as an asset to diversify with against geopolitical risk. Imagine, if South Korea is caught in the crossfire, as Seoul lies within the artillery range of North Korea, the South Korean Won would be hit hard, whereas the Ethereum network will still be running, with infrastructure spread across the world.
Ron Chernesky, CEO of InvestFeed, highlighted the use of cryptocurrencies as a hedge against a larger downturn in wider markets:
“We’re seeing investors transferring their funds into cryptocurrencies as they try to diversify their risk in case of a severe downturn in the market. The space has gone from niche to more widely adopted with one of the main draws being that cryptocurrencies are seen as less correlated with other assets.”
As the news about North Korea permeated around the world, ether enjoyed higher volume, surpassing $2.5 billion on August 9, which was significantly larger than the volume for the most popular cryptocurrency, bitcoin.
Ether is favoured by Koreans since Vitalik Buterin made an effort to put a face to the cryptocurrency; as a result, ether has gained trust among investors in the country, compared with bitcoin, whose creator remains anonymous. But not only are investors in the country buying frequently, they are betting big on the digital asset, as explained by Bobby Kim, trader and advisor on Bitcoin Seoul:
“When I started buying bitcoin, I noticed a huge difference between the orders in the U.S. and Korea. In the U.S., they trade around $100 up to $5,000 to $10,000 per trade. In Korea, these trade amounts are in $100,000 increments.”
The children of the “chaebol” conglomerates are the ones putting huge bets on cryptocurrency, investing their inherited riches. The huge volume increase saw ether rise to a fresh high against the Korean Won, above 363,000. In dollar terms, ETH-USD broke above the $300 handle, peaking at $315.12 on August 9. The price of ether has since retreated to the $300 handle. The chart below shows that as the news broke about North Korea’s supposed nuclear capability, volume increased on the Korbit exchange, which has a market share of around 6 percent of the entire ether market. Buyers managed to push ether up from 337,200 to 363,050 in just a few hours.
ETH-KRW also spiked later in the day as the Pentagon chief threatened the “rogue state” with the destruction of its people, with ether peaking around 351,450 against the Won. For ETH-USD, the cryptopair reached a fresh high at $316.92 in the rising heat of geopolitical tension.
The daily chart for ETH-USD is shown below and illustrates a bullish outlook for the cryptocurrency. We look to buy around the upper span of the Ichimoku cloud, which provides initial support around $269. Notice that the two previous candlestick are Doji’s, suggesting some indecision in the market, hence why we may see ETH-USD retreat to find a new floor around $270, before continuing higher. The Ichimoku cloud is also changing color, from red to green, providing an indication that a new uptrend is underway, confirmed with a breakout above the Ichimoku on August 6.
Support also lies at the conversion line ($267.24) and the base line ($235.46). Finally, notice that the lagging line has followed the price action, and is currently above the Ichimoku cloud, giving another bullish signal.
The 4-hour price action is displayed below, with a key support at $297.50. A 4-hour close below this level will open up the support provided by the base line, at $288.51. We look to buy if the market dips to this level. On the other hand, a break above the fractal resistance at $312.97 will point to further gains in the days ahead.
If ether manages to sustain above the $300 handle, we should see the bullish run continue, with a viable target at the all-time high above $400, which is the last remaining fractal resistance on the weekly timeframe. Hence, if ETH-USD remains above $271 by August 14, we should see the market take an attempt at $404.98.