Ethereum Shows Red Flags Following 60% Rally


Key Takeaways

  • Ethereum has gained over 1,200 points since Jul. 22.
  • Multiple indexes now anticipate a correction given the significant gains.
  • Transaction history shows that ETH’s downside potential might be capped at $2,770.

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Market participants have rushed to buy ETH following Ethereum’s much-anticipated London hardfork. Although prices have risen due to the growing demand, some technical and on-chain metrics suggest that a spike in profit-taking is underway. 

Sell Signals Appear for Ethereum

Despite the bullish momentum, Ethereum could be facing an imminent correction.

ETH has enjoyed an impressive run-up after breaking out of a descending triangle on Jul. 22. Since then, the second-largest cryptocurrency by market cap has surged by nearly 60% to reach a high of $3,200. Now that the projected target has been met, multiple red flags are beginning to pop up.

The Tom DeMark (TD) Sequential indicator has presented a sell signal on ETH’s daily chart. The bearish formation developed as a green nine candlestick, anticipating a one to four daily candlesticks correction or the beginning of a new downward countdown. 

Source: TradingView

Ethereum’s Market Value to Realized Value or MVRV adds credence to the pessimistic outlook. This on-chain metric quantifies the average profit or loss of all addresses that have purchased ETH within a specific period.

The 30-day MVRV ratio is currently hovering at 26.58%, suggesting that all addresses that have bought ETH in the past 30 days sit at an average profit of 26.58%. According to behavior analytics platform Santiment, the higher the MVRV ratio, “the higher the risk that Ethereum holders will begin to sell and reduce their exposure.”

Source: Santiment

Given the significant unrealized profits among ETH holders, Ethereum is currently in a danger zone. Historical trends indicate that a spike in profit-taking may be underway, translating into a short-term correction.

Ethereum Sits on Top of Stable Support

IntoTheBlock’s In/Out of the Money Around Price (IOMAP) model reveals that Ethereum is sitting on top of multiple demand barriers that could prevent it from a sudden downswing. 

The first significant interest area is between $2,960 and $3,050, where nearly 320,000 addresses have previously purchased over 1.4 million ETH. The second and most crucial support barrier lies between $2,670 and $2,860. Around this price point, more than 1.12 million addresses have acquired 2.63 million ETH. 

Such a critical support wall suggests that a spike in selling pressure could be short-lived as the bears may struggle to push prices down. 

Source: IntoTheBlock

On the other hand, the IOMAP model shows no supply barrier will prevent the second-largest cryptocurrency by market cap from advancing further. There is only one area of interest between $3,340 and $3,430, where over 360,000 addresses are holding nearly 390,000 ETH.

This supply zone may have the ability to absorb some of the recent buying pressure, but if ETH can slice through this hurdle, it could climb to $3,500.

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


Ethereum’s native asset Ether (ETH) crossed above $3,000 in an extended upside rally on Aug. 7, hitting a three-month high. Nevertheless, the cryptocurrency’s incredible move upside also boosted its possibilities of facing a bearish backlash.

An on-chain indicator that tracks the total percent 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 at Moskovski Capital, highlighted the metric’s capability of predicting Ethereum 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 HOLDing 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 the London hard fork stems from the increasing scarcity that should make this digital asset more valuable in the long run, specifically against a booming demand.

 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-stake 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 Ethereum 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. Nonetheless, technical indicators also pointed at higher sell-off probabilities in the short-term.

That RSI

Ether’s latest run-up above $3,000 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 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.com

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.

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