Ethereum‘s Resurgent Dominance: A Cause for Caution?
Ethereum (ETH) has been on a tear in May, with its price surging over 50% and pushing its market dominance back above the crucial 10% mark. This resurgence has breathed life into the broader crypto market, with many observers suggesting that an “altseason” might be underway. However, while the gains are certainly impressive, technical indicators paint a more nuanced picture, suggesting that Ethereum bulls might want to temper their enthusiasm.
Overheating Signals: A Historical Pattern
Ethereum‘s strong rally has pushed its daily Relative Strength Index (RSI) to its most overbought level since May 2021. This is a significant red flag for traders, as historically, such extreme RSI levels on ETH.D have been followed by major pullbacks.
One notable instance occurred in early July 2024, when ETH dominance peaked near similar RSI levels. Following this peak, ETH.D dropped by over 17.5% within the next 315 days. The current RSI spike, again above 80, resembles this historical pattern, suggesting that Ethereum‘s market share might be approaching a local top.
Further compounding the bearish outlook, ETH.D remains below its 200-day exponential moving average (200-day EMA). This resistance level has consistently capped Ethereum‘s dominance during previous recovery attempts. Given these factors, Ethereum‘s dominance could potentially decline towards its 50-day EMA support, suggesting potential capital rotation away from Ethereum towards other cryptocurrencies.
Bearish Divergence: Warning Signs for ETH/USD
Adding to the concerns, a classic bearish divergence is emerging on the four-hour ETH/USD chart. This pattern indicates that Ethereum‘s price is making higher highs, while momentum indicators are trending lower. This divergence often signals trend exhaustion and potential reversals.
Crypto trader AlphaBTC highlighted three distinct instances of divergence, further strengthening the bearish sentiment. He pointed out that key Fibonacci levels align with potential support zones, hinting that a pullback might be imminent. With ETH currently hovering near the $2,740 Fibonacci extension, profit-taking pressure could intensify, potentially leading to a short-term correction towards lower Fibonacci levels at around $2,330 or even $2,190, a 10-15% drop from current prices.
Buy-the-Dip or Sell-the-Rally?
Despite the technical warning signs, some analysts remain optimistic about Ethereum‘s long-term prospects. Independent market analyst Michaël van de Poppe believes that any decline in the coming weeks could present a “buy-the-dip opportunity.” He suggests that Ethereum will ultimately climb back above $3,500.
Veteran trader Peter Brandt also shared a bullish outlook, predicting a “moon shot” rally for ETH to over $3,800. While these perspectives offer hope, it’s crucial to remember that the market is highly volatile and unforeseen events can easily disrupt any predictions.
Ultimately, traders should exercise caution and proceed with prudence. The recent rally has undoubtedly been impressive, but the technical indicators suggest that a period of consolidation or even correction might be on the horizon. While some view this as a buying opportunity, others might prefer to wait for a clearer signal before entering the market.
As always, it’s essential to conduct thorough research and consider your own risk tolerance before making any investment decisions.
