The Ethereum price rises above 3,000 USD into the “red zone”, which is triggering sales fears

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Ethereum’s native asset, Ether (ETH), surged above $ 3,000 in an extended upward rally on Saturday to hit a three-month high. Nonetheless, the cryptocurrency’s incredible uptrend has also increased its ability to face a bearish backlash.

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

Lex Moskovski, Moskovski Capital’s chief investment officer, highlighted the metric’s ability to predict the spike of ether. In retrospect, the Glassnode indicator always led to profit-taking among ether investors whenever it exceeded the 90% threshold.

The Ethereum percentage of profitable addresses enters the sell-off zone. Source: Glassnode

“We are back in the red area, which is historically associated with local peaks,” said Moskovski, referring to the Glassnode diagram above. Nonetheless, he added that the price could stay near its current highs – above $ 3,000 – for a while.

Shortage of supply meets suppressed mood

Moskovski’s outlook indicated traders’ intent to hold Ether, largely due to euphoria over a software upgrade that has put deflationary pressures on ETH.

The optimism about the London hard fork of Ethereum stems from the increasing scarcity that should make ETH more valuable in the long term, especially against booming demand.

Related: Altcoin Summary: Ethereum hodling? Here you can find out how and where to stake out your ETH

The London upgrade will split nearly 13,000 new Ether tokens issued to pay miners’ gas fees into three parts. One of them is the base fee users pay for performing ETH transactions, which the updated 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) is also reducing the active ether supply from the market.

In detail, the PoS mechanism asks the network operators to pay 32 ETH into a smart contract as a stake in the operation of the blockchain. In return, the protocol rewards depositors with annual returns.

26% of the supply of Ether are bound in smart contracts. Source: Glassnode

Moskovski indicated that traders might find holding ether more attractive than hedging interim profits as ETH / USD is now trading 79.82% above its July 20 low of $ 1,718. However, technical indicators also indicated higher sell-off probabilities in the short term.

That RSI

Ether’s recent surge above $ 3,000 has also pushed its Daily Relative Strength Index (RSI) into overbought territory.

RSI enables traders to measure an asset’s trending momentum in order to assess its overbought and oversold condition. In simple terms, traders interpret a value above 70 as overbought – an indication to sell the asset. Conversely, an RSI below 30 offers a buying opportunity due to the oversold conditions of the asset.

Related: Ethereum sees a 3-week winning streak against Bitcoin as BTC price falls below $ 39,000

Ether’s daily RSI is currently 79 as shown in the chart below.

The Ether RSI is above 70, which indicates excessive valuations. Source: TradingView

Meanwhile, a falling wedge breakout setup brewing on the daily ETH chart sees its profit target near $ 3,250. Falling wedge breakouts typically last as long as the total height between the top and bottom trend lines of the wedge.

Related: MyEtherWallet CEO notes two “critical” components of the Ethereum London upgrade

The views and opinions expressed are those of the author only and do not necessarily reflect the views of Cointelegraph.com. Every step of investing and trading involves risk, so you should do your own research when making a decision.