Ethereum (ETH) Market Dominance Hits Overbought RSI Levels Not Seen Since May 2021, Historically Followed by Major Pullbacks

Ethereum’s market dominance has hit overbought RSI levels not seen since May 2021, historically followed by major pullbacks.

The strong recovery in Ether (ETH) has pushed its daily relative strength index (RSI) to its most overbought zone since May 2021, which might translate into a near-term price pullback.

Usually, such extreme RSI levels on ETH.D, the ratio of Ethereum’s market cap to the total cryptocurrency market capitalization, mark the beginning of major pullbacks.

One notable instance occurred in early July 2024, when ETH dominance peaked at 9.87% with RSI at 80. Over the following 315 days, ETH.D dropped by more than 17.5% as RSI slid below 70.

The current RSI spike, again above 80, mimics a similar setup, suggesting that Ethereum could be nearing a local top in its market share.

The world's second-largest cryptocurrency has surged over 50% month-to-date in May, vastly outperforming the broader crypto market’s 15.25% gain. The rally has pushed Ethereum’s market dominance (ETH.D) toward the critical 10% threshold for the first time since March.

However, the rising dominance accompanies signs of overheating, which indicates that Ethereum bulls should not celebrate the rally just yet.

Extreme RSI levels on ETH.D usually mark major pullbacks

The cryptocurrency's strong recovery in market share has pushed its daily RSI into its most overbought zone, which might translate into a near-term price pullback.

Usually, such extreme RSI levels mark the beginning of major pullbacks. One notable instance occurred in early July 2024, when ETH dominance peaked at 9.87% with RSI at 80. Over the following 315 days, ETH.D dropped by more than 17.5% as RSI slid below 70.

The current RSI spike, again above 80, mimics a similar setup, suggesting that Ethereum could be nearing a local top in its market share.

The chart above highlights that ETH.D remains below its 200-day exponential moving average (200-day EMA; the blue wave). This resistance level has repeatedly capped Ethereum's dominance during previous recovery attempts.

Moreover, we can observe that previous overbought pullbacks have initially pushed Ethereum's market share towards its 50-day EMA (the red wave).

The ETH.D metric, therefore, risks decreasing towards its current 50-day EMA support at around 8.24% by June, suggesting potential capital rotation out of Ethereum markets to other coins in the coming weeks.

As the final point, we can notice that on the four-hour ETH/USD chart, a classic bearish divergence is emerging, 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. He added that key Fibonacci levels align with potential support zones, suggesting a pullback could be imminent.

With ETH hovering near the $2,740 Fibonacci extension, profit-taking pressure may intensify, opening the door for a short-term correction towards lower Fib levels at around $2,330 or even $2,190, down 10%-15% from the current prices.

suggesting that the cryptocurrency would eventually climb over $3,500.

Veteran trader Peter Brandt further predicts a "moon shot" rally to over $3,800.