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Ethereum (ETH) could face a period of instability in the coming weeks, according to Markus Thielen, head of research at 10x Research. Rising borrowing costs for wrapped Ether (wETH) and overbought technical indicators suggest a potential “meaningful unwinding” across the Ethereum ecosystem.
As of now, Ether is trading around $3,623, showing a 49% gain over the past 30 days, according to data from Nansen. However, despite this strong performance, Thielen believes the crypto asset’s short-term outlook is vulnerable. “We believe Ethereum is looking vulnerable in the near term,” Thielen said. He pointed out that market activity typically slows down during the summer months in the U.S., and the technical indicators are currently “deeply overbought.”
One of the key concerns raised by Thielen is the rising cost of borrowing wrapped Ether, or wETH — a tokenized form of ETH widely used on decentralized finance (DeFi) platforms like Aave. The increasing borrowing rates have made leveraged trading strategies less appealing, especially those involving staking, which previously offered enhanced yield through what’s known as “looping” strategies.
Thielen explained that these strategies rely on low borrowing costs and a stable peg between staked Ether (stETH) and ETH. However, current conditions have made them largely unprofitable. According to his report, Aave’s lending pool utilization rate for wETH has jumped from 86% to 95% since July 8. This surge means demand for borrowing ETH now exceeds the available supply, which has pushed up variable borrowing rates significantly.
“The variable cost of borrowing wETH has gone up, and it’s unprofitable to borrow ETH now,” Thielen stated. “Hence, there should be more unwinding of those who have borrowed ETH on Aave.” This potential unwinding — where traders close out leveraged positions — could exert selling pressure on the market, especially if high borrowing costs persist.
Moreover, Thielen noted that over 90% of Ether loans on Aave are tied to variable interest rates. This means borrowers are especially vulnerable to rapid increases in borrowing costs, which can quickly erode the profitability of leveraged positions. “If this persists, it could trigger a meaningful unwinding, especially with funding rates and positioning still stretched,” he added.
Despite these near-term risks, Thielen remains optimistic about Ethereum’s long-term trajectory. He believes a better setup could emerge after September, as historical data shows the fourth quarter has typically been Ethereum’s strongest. Since 2013, Q4 has averaged a return of 22.59%, while Q3 has historically underperformed with an average gain of only 8.19%, according to CoinGlass data.
In addition to technical pressures, market behavior is also playing a role. The ETH/BTC ratio — which measures Ether’s relative strength to Bitcoin — has risen 34% over the past month, indicating strong momentum. Still, analysts caution that such sharp moves can become overheated, particularly in an environment with elevated funding costs and seasonal trading slowdowns.
While Thielen’s analysis highlights potential vulnerabilities in Ethereum’s DeFi infrastructure, it also underscores the evolving nature of crypto market dynamics. DeFi strategies that were highly profitable under previous conditions are now being tested by changing liquidity and interest rate environments.
Looking ahead, much will depend on whether borrowing rates normalize and if the ETH-to-stETH peg remains stable. If conditions stabilize, traders could return to using leverage to boost yields, which may support ETH prices. But if rates continue to rise or if the peg breaks, further unwinding could increase volatility across Ethereum-linked assets.
For now, investors and traders may need to brace for short-term turbulence, especially during what is expected to be a quieter summer stretch in crypto markets. However, with historical trends pointing to a stronger Q4, some analysts are eyeing September and beyond as a potential rebound window for Ether — assuming current challenges are navigated successfully.
