Ethereum market overheats near $2.5K — is a short-term correction on the horizon?

Ethereum has climbed to around $2,540, approaching the key $2,500 level, but signs point to the market becoming overheated.

According to a May 21 analysis by CryptoQuant contributor ShayanMarkets, trading volume has spiked as Ethereum (ETH) nears this resistance zone. This increase in activity has coincided with a spike in short-term profit-taking. When a market is said to be “overheating,” it typically means that prices have risen too quickly due to speculation rather than long-term conviction. 

In this instance, ETH’s quick 55% recovery over the last month after a 45% decline in Q1 raises the possibility that the rally may be about to pause or reverse. The overheated market suggests a potential short-term pullback, creating room for fresh accumulation once conditions stabilize.

Technical data supports this view. The relative strength index, at 69, is hovering just below the overbought zone, a level that often precedes short-term corrections. Meanwhile, momentum is still positive and all of the major moving averages, from the 10-day to the 200-day, are pointing upward. This suggests that there is still strong underlying support even when the current price action has stalled. 

If Ethereum is unable to break $2,700, it may retreat to the $2,300–$2,350 range, where support is starting to form. If there is a more significant correction, prices may approach $2,100. However, the rally may continue if ETH makes a strong breakout above $2,700 on high volume, particularly if there are positive developments to back up the breakout. 

Behind the scenes, large players appear to be positioning for what could come next. On-chain data shows that since late April, large holders, wallets with more than 10,000 ETH, have accumulated more than 450,000 ETH. Meanwhile, U.S.-based Ethereum exchange-traded funds have seen $108 million in net inflows over the past month, according to SoSoValue data.

Now, a significant catalyst is approaching. By June 1st, the U.S. Securities and Exchange Commission is expected to make a decision regarding the inclusion of staking in ETH ETFs. By allowing institutions to earn yield from these regulated products, it could stir a new wave of demand.

Along with the demand for ETFs, London-based asset manager Abraxas Capital purchased 350,703 ETH, worth about $837 million, between May 7 and May 20. With favorable on-chain trends and increasing institutional appetite, Ethereum’s long-term narrative seems intact despite short-term pressures.