Ethereum price soars above $3K into ‘red zone,’ triggering sell-off fears

An on-chain indicator, notorious for accurately predicting Ether tops, returns amid the ongoing price rally.

Ethereum’s native asset, Ether (ETH), crossed above $3,000 in an extended upside rally on Saturday, hitting a three-month high. Nevertheless, the cryptocurrency’s incredible move upward also boosted its possibilities of facing a bearish backlash.

An on-chain indicator that tracks the total percentage of Ethereum addresses in profits predicted the said downside outlook. In detail, the so-called “Ethereum: Percent of Addresses in Profits” indicator by Glassnode reached 96.4% amid the ETH/USD price rally.

Lex Moskovski, chief investment officer of Moskovski Capital, highlighted the metric’s capability of predicting Ether’s top. In hindsight, whenever the Glassnode indicator crossed the 90%-threshold, it resulted in profit-taking among Ether investors. 

Ethereum percentage of profit-making addresses enters sell-off zone. Source: Glassnode

“We are back to the red zone, historically associated with local tops,” said Moskovski as he referred to the Glassnode chart above. Nonetheless, he added that the price might stay near its current highs — above $3,000 — for a while.

Supply squeeze meets hodling sentiment

Moskovski’s outlook pointed at traders’ intention to hold Ether, majorly due to the euphoria surrounding a software upgrade that has added deflationary pressure to ETH.

The optimism around Ethereum’s London hard fork stems from the increasing scarcity that should make ETH more valuable in the long run, specifically against a booming demand.

Related: Altcoin Roundup: Hodling Ethereum? Here’s how and where to stake your ETH

The London upgrade will divide almost 13,000 new Ether tokens issued to pay for miners' gas fees into three parts. One of them is the base fee that users pay to conduct ETH transactions, which the upgraded Ethereum protocol will now burn.

In addition, Ethereum’s ongoing transition from an energy-intensive proof-of-work mechanism to a faster and cheaper proof-of-stake (PoS) also reduces active Ether supply out of the market.

In detail, the PoS mechanism prompts network operators to deposit 32 ETH into a smart contract as a stake to run the blockchain. In return, the protocol rewards depositors with annual yields.

26% of Ether’s supply is locked in smart contracts. Source: Glassnode

Moskovski hinted that traders could find holding Ether more appealing than secure interim profits as ETH/USD now trades 79.82% above its July 20 bottom of $1,718. However, technical indicators also pointed at higher sell-off probabilities in the short term.

That RSI

Ether’s latest run-up above $3,000 has also pushed its daily relative strength index (RSI) into an overbought area.

RSI enables traders to measure an asset’s trend momentum to evaluate its overbought and oversold condition. In simple terms, traders interpret a reading above 70 as overbought — a cue to sell the asset. Conversely, an RSI below 30 poses a buying opportunity due to the asset’s oversold conditions.

Related: Ethereum eyes 3-week winning streak vs. Bitcoin as BTC price drifts below $39K

Ether’s daily RSI reading currently sits near 79, as shown in the chart below.

Ether RSI is above 70, indicating excessive valuations. Source: TradingView

Meanwhile, a falling wedge breakout setup brewing on the daily ETH chart envisions its profit target near $3,250. Falling wedge breakouts typically last by as much as the total height between the wedge’s upper and lower trendline.

Related: MyEtherWallet CEO notes two 'crucial' components of Ethereum London upgrade

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and trading move involves risk, you should conduct your own research when making a decision.

Publication date: 
08/07/2021 - 11:31

The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.