Analysts warn of potential instability for Ethereum in the near future due to rising borrowing costs and technical overheating.
Potential Risks for Ethereum
According to Markus Thielen, head of research at 10x Research, Ethereum (ETH) appears vulnerable in the near term. 'The market is entering a quieter summer stretch, particularly in the US during August, while technical indicators remain deeply overbought.'
Impact of Rising Borrowing Costs
Thielen emphasized that a key risk for Ethereum's price is the declining profitability of borrowing wrapped Ethereum (wETH), which is widely used across decentralized finance platforms. He explained, 'The variable cost of borrowing wETH has gone up, and it’s unprofitable to borrow ETH now, hence there should be more unwinding of those who have borrowed ETH on Aave.'
Long-Term Prospects for Ethereum
Despite potential headwinds in the short term, Thielen expects a more favorable setup for Ethereum after September. Historically, Q3 has been the second-worst-performing quarter for Ethereum, averaging a return of 8.19% since 2013, while Q4 typically sees the strongest performance, averaging a return of 22.59%.
In conclusion, while the short-term prospects for Ethereum may appear less optimistic, the long-term outlook remains relatively positive.
