Ethereum (ETH) has surged over 50% in May, significantly outperforming the broader crypto market's 15.25% gain, according to a report published today. This rally has pushed Ethereum's market dominance back toward the critical 10% threshold for the first time since March.
However, the rising dominance accompanies signs of overheating. Ethereum's daily relative strength index (RSI) has reached its most overbought zone since May 2021, raising concerns for traders betting on further upside in the short term.
Historically, extreme RSI levels on ETH.D have marked the beginning of major pullbacks. For example, in early July 2024, ETH dominance peaked near similar RSI levels, followed by a 17.5% drop over the next 315 days.
The current RSI spike, above 80, mimics a similar setup, suggesting Ethereum could be nearing a local top in its market share. ETH.D remains below its 200-day exponential moving average, a resistance level that has repeatedly capped Ethereum's dominance during previous recovery attempts.
The ETH.D metric risks declining toward its current 50-day EMA support at around 8.24% by June, suggesting potential capital rotation out of Ethereum markets. A bearish divergence is emerging on the four-hour ETH/USD chart, where Ethereum's price continues to print higher highs, but momentum indicators trend lower.
Crypto trader AlphaBTC noted that ETH is showing "three clear drives of divergence," a setup often preceding trend exhaustion. With ETH hovering near the $2,740 Fibonacci extension, profit-taking pressure may intensify, potentially leading to a short-term correction toward lower Fib levels at around $2,330 or even $2,190, down 10-15% from current prices.
Despite the near-term risks, independent market analyst Michaël van de Poppe suggests ETH's decline in the coming weeks could serve as a "buy-the-dip opportunity." Veteran trader Peter Brandt further predicts a "moon shot" rally to over $3,800.
This article is based on our author's analysis of materials taken from Cointelegraph.