Ethereum may face volatility soon, according to crypto analyst Markus Thielen, chief research officer at 10x Research.
Mr. Thielen suggests Ethereum appears vulnerable in the near term due to rising borrowing costs for wrapped Ether (wETH), particularly on platforms like Aave, and persistently overbought technical indicators.
We believe Ethereum is looking vulnerable in the near term. The market is entering a quieter summer stretch, while technical indicators remain deeply overbought.
Vulnerability Amid Funding Rate Surge
Declining profits from borrowing wrapped Ether (wETH) represent a significant risk factor for its price, the analyst stated.
Tracking data showed Ether climbed 49% in the last 30 days, while its relative performance against Bitcoin saw a 34 point increase during the same period. (The ETH/BTC ratio stands at 0.03116).
Thielen’s report highlights that borrowing activity on Aave for wETH surged 19 percentage points between July 8 and the current date, concurrent with borrow rates rising and lending supply increasing.
Mr. Thielen explained: “The variable cost of borrowing wETH has gone up and it’s unprofitable to borrow ETH now.”
He predicts potential negative consequences: “If this persists, it could trigger a meaningful unwinding, especially with funding rates and positioning still stretched.”
A Long-Term Perspective
Most demand for Ether borrowing stems from traders deploying leveraged strategies in staking to magnify yields.
However, Thielen notes these “looping” strategies are only sustainable when Ethereum borrow rates are low and the stETH-to-ETH peg is maintained.
Most Ether loan interest rates (over 90%) being variable leaves borrowers susceptible to sharp cost increases.
The analyst acknowledged short-term headwinds but anticipates improving conditions after September. Financial history suggests September and October often present challenges for Ethereum, whereas December typically offers more favorable returns.
Historical Allocation: While addressing the timeline, Thielen’s analysis underscores the apparent volatility this time period presents.
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