Ethereum may rebound due to low RSI and upcoming upgrade plans

According to the latest report from Citigroup, the price of Ethereum (ETH) has dropped by more than 20% this year, but its fundamentals are improving. The total value locked (TVL) on the Ethereum network has significantly increased, while Ethereum ETFs continue to attract capital inflows, with a cumulative inflow of $3.2 billion since their launch in July. Additionally, the search interest for Ethereum has also been rising.

Although the ETH market has been volatile and has even declined since February, Citigroup analysts say that the fundamentals of Ethereum are not entirely pessimistic. The report also mentions that former U.S. President Trump’s World Liberty Financial holds more than $200 million in Ether, which could be seen as additional support for the U.S. strengthening its stance on the cryptocurrency industry. Meanwhile, the weak performance of Ether aligns with Bitcoin’s increasing dominance, which has risen to a multi-year high, now exceeding 60%.

At the same time, Ethereum’s core developers have confirmed the Pectra upgrade will be launched in March 2025. This version integrates the previously planned Prague and Electra upgrades in phases, aiming to enhance network performance through technical optimization and significantly boost the capacity of the Layer 2 (L2) ecosystem.

With the dual support from both technical and fundamental aspects, the ETH price has a catalyst for a short-term rebound. More importantly, from a technical perspective, ETH has already stopped falling and is in the process of building a bottom structure. Whether it will consolidate horizontally, experience range-bound fluctuations, or reverse the trend, we are simply waiting for the “wind” to come.

Where is the wind? The wind is in the market! The core contradiction in the market now lies in whether the short-term momentum from oversold recovery can resonate with the long-term narrative of the Pectra upgrade, thereby triggering a new round of the uptrend cycle!

Technical Aspect: RSI (Relative Strength Index)

RSI is a key technical indicator for measuring whether an asset is overbought or oversold. According to a SuperEx report, ETH’s daily RSI dropped to 20.7 on February 4th, and remained below 25 for several days, nearing the historical low (18.5) from the 2023 bear market, indicating that market sentiment has become extremely pessimistic. From historical data, ETH has averaged a 35% rebound in the 30 days following an RSI below 30, and oversold recovery periods typically come with increased trading volume. For example, on December 10, 2024, ETH rebounded from a low of $3,515 to $4,107, with its RSI recovering from 39 to 65, reflecting a 17% increase.

Let’s Take a Look at Ethereum’s Pectra Upgrade: Technical Breakthroughs and Ecosystem Expansion

1. Core Content of the Upgrade

The Pectra upgrade, following Ethereum’s “Shanghai upgrade,” is another key technical iteration that marks further breakthroughs in Ethereum’s scalability, security, and decentralization. The core goal of the Pectra upgrade is to drive the further growth of the Ethereum ecosystem by optimizing Layer 2 (L2) solutions, reducing gas fees, and improving client efficiency.

Layer 2 Scaling: Enhancing Transaction Processing Capacity

Layer 2 scaling has been one of Ethereum’s major technical challenges. As Ethereum’s network grows and applications thrive, network congestion and transaction fees have continuously risen, significantly reducing the user experience. The Pectra upgrade addresses this by increasing the Blob target from 3 to 6, greatly enhancing the transaction processing capacity of the Layer 2 network, enabling it to support more transactions and higher throughput. Specifically, the Blob target refers to the unit used for storing transaction data in Layer 2 solutions. Increasing the Blob target means more transaction data can be processed, thereby improving the overall network’s transaction throughput. Through this technical upgrade, Pectra effectively solves the bottleneck faced by Ethereum’s Layer 2 network in processing a large number of transactions, shifting Ethereum from a high-fee single-chain network to a low-cost, high-efficiency network architecture.

More importantly, this technical breakthrough will further reduce users’ transaction costs. Doubling the transaction processing capacity not only means more transactions can occur simultaneously but also effectively reduces transaction delays and high gas fees caused by network congestion. This is a significant benefit for developers and users of decentralized finance (DeFi) and decentralized applications (DApps). As the Ethereum network is capable of handling more transactions, it is expected that more projects will choose to deploy their smart contracts and applications on Ethereum, accelerating the growth of the Ethereum ecosystem.

Gas Fee Optimization: Improving Network Smoothness

For some time, Ethereum’s gas fee problem has been a subject of criticism. As the number of Ethereum users and transactions grows, gas fees have skyrocketed, especially under high-load scenarios, leading to significant volatility in transaction costs, troubling users. The Pectra upgrade has validated the gas fee limit enhancement scheme on the Holesky testnet, proposing effective optimization strategies for network congestion under high-load conditions.

This optimization scheme not only increases the gas fee limit but also boosts the network’s transaction throughput under high-load conditions. Ethereum’s gas fee is determined by the complexity of the transaction, its priority, and the current network congestion. By optimizing the gas fee limit, Pectra can effectively avoid the fee surges caused by transaction congestion, ensuring that users can still transact at lower fees even under high-load conditions. For developers, this means they can deploy smart contracts and DApps more efficiently, reducing development costs due to high gas fees, thus improving the overall sustainability of the ecosystem.

Moreover, the gas fee optimization will further promote the prosperity of Ethereum’s Layer 2 ecosystem. Many DApps and DeFi protocols operating on the Ethereum mainnet will migrate to Ethereum’s Layer 2 network, relieving the mainnet’s burden and benefiting from lower transaction fees. This will make Ethereum’s network more adaptable to large-scale commercial applications and enhance its competitiveness as a blockchain platform.

Client Efficiency Upgrade: Promoting Network Decentralization

Improving client efficiency is an important step in Ethereum’s decentralization. As Ethereum’s network complexity increases, the hardware requirements for running nodes have also risen, creating a high entry barrier. To lower this barrier, the Pectra upgrade introduces EIP-4444 (historical data expiration) and stateless solutions. This plan will effectively reduce the hardware resource requirements for nodes, enabling ordinary users to become part of the network as nodes, thereby enhancing Ethereum’s decentralization.

Specifically, EIP-4444 allows Ethereum to periodically “expire” historical data, meaning that outdated data will no longer be stored. This way, Ethereum nodes won’t need to store all historical transaction data, reducing the storage burden on nodes. The stateless solution further reduces nodes’ reliance on computing and storage resources, allowing smaller devices to participate as nodes in the network. As nodes become more decentralized, the network’s security and censorship resistance will be further strengthened, helping solidify Ethereum’s core position as a decentralized network.

2. Market Impact Assessment

Historically, major Ethereum upgrades have often been accompanied by market volatility. Before the upgrade, the market tends to create a lot of speculative hype, pushing ETH prices up. However, after the upgrade, due to profit-taking and market adjustments, ETH prices often experience some degree of correction. For instance, during the 2023 Shanghai upgrade, ETH’s price increased from $1,200 to $2,100, but after the upgrade, the price fell by about 15%. This volatility reflects the market’s overreaction to the upgrade expectations and the subsequent adjustment after the upgrade.

However, the uniqueness of the Pectra upgrade lies in the technical synergies it brings and the changes in institutional fund allocations, making its market impact different from previous upgrades.

Technical Synergies: Attracting More Layer 2 Projects and DApp Developers

The Pectra upgrade increases the Blob capacity, which directly benefits mainstream Ethereum Layer 2 projects (such as Optimism, Arbitrum, etc.). These projects rely on Layer 2 networks to provide efficient transaction processing capabilities. With Pectra’s technical breakthroughs, these projects can further expand their businesses and attract more DApp developers and users. Especially in fields like DeFi, NFTs, and gaming, the Pectra upgrade provides stronger technical support for these projects, and it is expected to drive a large number of DApps to migrate from other platforms to the Ethereum ecosystem.

As Layer 2 networks mature further, more developers will be able to deploy decentralized applications on Ethereum, driving the growth of the entire Ethereum ecosystem. This upgrade may also provide Ethereum with better scalability, allowing it to maintain its competitive advantage in the global blockchain market.

Institutional Fund Allocation: Betting on Ecosystem Explosion

The Pectra upgrade also brings new opportunities for institutional investors. In December 2024, the net inflow of funds into Ethereum’s spot ETFs reached $2.1 billion, setting a new historical high, reflecting institutional investors’ confidence in the future explosion of Ethereum’s ecosystem. With the completion of the Pectra upgrade, Ethereum’s expansion and optimization are expected to further promote the development of the entire ecosystem, accelerating institutional investors’ fund allocation.

This influx of funds is not just about short-term profits but is also based on the long-term potential of Ethereum’s development. By supporting the Ethereum Layer 2 ecosystem, driving technological innovation, and expanding the ecosystem, institutional funds can provide strong support for Ethereum’s long-term development.

External factors, particularly market sentiment, must also be considered. 

External factors’ impact must also be considered, particularly market sentiment. As of February 13, the ETH perpetual contract funding rate has not shown a significant bullish or bearish bias; the put/call ratio in the options market shows that bullish sentiment still dominates. This divergence indicates that the short-term market is more inclined to participate in the rebound through spot holdings rather than leveraged contracts.

On-chain data insights:

• Whale activity: Addresses holding more than 10,000 ETH increased their holdings by 4.2% of the circulating supply in January, but the rate of reduction has accelerated since February, possibly due to profit-taking.
• Staking dynamics: Ethereum’s staking rate remains stable at 28.7%, with approximately 34 million ETH locked. The liquidity shock from the Shanghai upgrade has been mostly absorbed.

Final thoughts: Ethereum’s short-term rebound is just the starting point for long-term value reconstruction. The Pectra upgrade is not just a technical iteration, but a key stepping stone in its transformation from a “smart contract platform” to a “decentralized computing layer.” With AI integration, expanded Layer 2 capacity, and the improvement of regulatory frameworks, ETH is expected to break through the $6,000 cycle peak by the end of 2025, re-establishing its pricing power in the crypto market.