Is the Bear Market Really Over?

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Photo by Art Rachen on Unsplash

Ethereum surged roughly 27% in a single week. It broke through $2,000, powered past $2,300, and as of today sits testing the $2,400 level — its highest price since early 2025. The rally produced over $1 billion in short liquidations across derivatives markets, triggered more than $220 million in spot ETH ETF inflows in a single day, and has the crypto community asking the question that everyone wants answered: is the bear market finally over?

Maybe. But there’s something underneath this rally that almost nobody is talking about, and if you hold ETH or have any exposure to DeFi, you need to understand it before you get comfortable.

What Happened — and Why

The rally didn’t come from nowhere. Three things converged in the same week:

The regulatory trigger. On August 20, President Trump publicly urged Congress to pass the CLARITY Act — the most significant piece of crypto legislation currently moving through the US system. The bill includes protections for noncustodial developers and blockchain infrastructure, and it has already passed the House. That public endorsement from the White House sent a clear signal to institutional investors: the regulatory direction is toward clarity, not crackdown.

The ETF inflows. Ethereum spot ETFs recorded $221 million in inflows on August 20 alone, while Bitcoin ETFs pulled in $606 million the same day. Combined, that’s over $800 million of institutional capital flowing into crypto through regulated products in a single session. That kind of volume doesn’t come from retail traders refreshing CoinGecko — it comes from funds, advisors, and allocators executing planned positions.

The short squeeze. Before the rally, ETH had been stuck between $1,850 and $1,950 for most of August. Repeated failures at $2,000 had allowed short positions to build up around that psychological level. When the buying pressure hit, those shorts got liquidated in sequence — each forced buy pushing the price higher, triggering the next liquidation. The result was a cascading squeeze that carried ETH from $1,900 to $2,400 in roughly three days.

That combination — regulatory clarity, institutional inflows, and a liquidation cascade — produced the kind of vertical price move that makes people forget everything they were worried about a week ago.

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The Bullish Case — and It’s Real

I want to be fair to both sides here, so let me start with why this rally has genuine structural support behind it, not just short-squeeze mechanics.

ETH is above all major moving averages for the first time this year. The price sits above the 20-day, 50-day, 100-day, and 200-day exponential moving averages simultaneously. The 200-day EMA in particular had been falling all year and defined the downtrend that capped every previous rally. Breaking above it is technically significant.

The ETH/BTC ratio is recovering. For most of 2026, ETH underperformed Bitcoin by a significant margin. The ETH/BTC ratio sat near multi-year lows. This rally changed that — ETH’s 27% weekly gain substantially outpaced Bitcoin’s roughly 10% move over the same period. Capital is rotating from Bitcoin into ETH for the first time this cycle. That’s a different kind of demand than a rising-tide-lifts-all-boats rally.

Institutional infrastructure is deepening. The number of distinct institutional filers holding at least one US spot ETH ETF product rose from 114 in Q4 2025 to 189 in Q1 2026 — a 66% increase in a single quarter. Staking-enabled ETH ETFs are pending from Fidelity, Franklin Templeton, and VanEck after the SEC and CFTC classified staking rewards as non-securities in March 2026. When those products launch, institutional investors will get price exposure and yield through a single brokerage product.

The upcoming Glamsterdam upgrade. Ethereum’s next major network upgrade is targeting Q3 2026, bringing proposer-builder separation and scaling improvements. Network upgrades historically correlate with positive sentiment, and this one addresses L1 performance directly.

All of that is real. This isn’t a dead-cat bounce driven by leverage alone. There are structural reasons to be cautiously optimistic about ETH’s position right now.

The Risk Nobody Is Talking About

Now here’s the part that matters, and the reason I wrote this article instead of simply posting “ETH to the moon” on X like everyone else.

On August 18, Galaxy Research published an analysis of Aave V3 — the largest decentralised lending protocol on Ethereum, holding roughly $12.2 billion in total value locked. What they found should concern every ETH investor:

Fewer than 9% of loan positions on Aave carry approximately half of the platform’s total outstanding debt. These concentrated positions share a common structure: they are leveraged Ethereum staking correlation trades, using WETH debt against liquid staking token collateral — primarily weETH, wstETH, and rsETH.

Here’s how the trade works, simplified. A trader deposits liquid staking tokens (like Lido’s wstETH) as collateral on Aave. They borrow WETH against that collateral at up to 97% loan-to-value, thanks to Aave’s E-mode setting for correlated assets. They then stake the borrowed WETH to create more liquid staking tokens, deposit those as collateral, borrow more WETH, and repeat. Each loop adds leverage. The profit comes from the staking yield, which compounds with each layer of recursion.

On paper, this looks safe because the collateral and the debt are supposed to move together — they’re all versions of ETH. The average health factor across these positions sits at roughly 1.06, with a debt-weighted loan-to-value near 90% and a debt-to-equity ratio of approximately 10.7 times.

In practice, the risk is entirely concentrated in one question: do the liquid staking tokens maintain their peg to ETH?

Galaxy’s analysis is clear: an 8% to 9% discount in liquid staking wrapper prices relative to ETH would push health factors below 1.0, triggering automatic on-chain liquidations. A 10% depeg could flip hundreds of accounts below the danger threshold simultaneously.

We have seen a version of this before. In 2022, Lido’s stETH briefly depegged from ETH during the collapse of Terra/Luna and Three Arrows Capital, triggering a cascade of forced selling. The DeFi ecosystem was smaller then, and the leverage was less concentrated. Today, the positions are larger, the leverage is higher, and the correlation trade is more deeply embedded in Aave’s balance sheet.

To be absolutely clear: none of this means a liquidation cascade is imminent. The rally itself has actually improved health factors across these positions by raising the value of the collateral. But the structural vulnerability remains. If ETH corrects sharply — a normal possibility after a 27% vertical move — and if liquid staking tokens gap down faster than ETH itself, the cascade risk is real.

What the RSI Is Telling You

There’s a simpler, more immediate warning signal worth noting. Ethereum’s 14-day RSI has surged to approximately 85 — deep into overbought territory. The price is trading well above the upper Bollinger Band. Historically, readings this extreme precede either a consolidation or a pullback, not a continuation of the vertical move.

This doesn’t mean the rally is over. It means the easy part is probably done. Buying ETH after a 27% weekly move at an RSI of 85 is a fundamentally different risk-reward proposition than buying at $1,900 a week ago. The traders who made money on this rally were already positioned before it happened. The traders who will lose money are the ones buying now because they saw the chart go up and don’t want to miss out.

If you already hold ETH — as I do — this is a moment for patience, not action. Let the price tell you whether $2,400 becomes support or resistance. Think about not adding to your position at the top of a vertical move driven partly by a liquidation cascade.

Something Different While You Wait

While we’re on the subject of patience — if you’re sitting on your hands waiting to see how this ETH move resolves, you might as well put your time into something more interesting than watching a chart.

Kingdom Harvest just launched the Herbalist — our latest addition where players take flowers they’ve grown from seed (saffron, woad, and hopi sunflower) and steep them over the fire into coloured dyes. These dyes will give wearable items bonuses, so now is the time to start stockpiling. The game is live on Base network at kingdomharvest.app — give it a try.

The Herbalist from Kingdom Harvest

The EIP-8363 Cloud on the Horizon

There’s one more factor ETH holders should be aware of that has nothing to do with this week’s price action but everything to do with the medium-term outlook.

On August 4, a draft Ethereum Improvement Proposal called EIP-8363 was submitted. Titled “Tapered Issuance Burn,” it would progressively reduce and eventually eliminate consensus-layer staking rewards as the proportion of staked ETH rises, driving net issuance yield to zero once roughly half the supply is staked.

Aave’s founder Stani Kulechov ran the numbers at current staking levels and calculated a 48% reduction in validator income. He described it as one of the most resisted proposals in Ethereum’s history. The ether.fi founder called it disappointing on every level. Core developers discussed it on August 6 but did not include it in the upcoming Glamsterdam upgrade — it’s shelved for now, not dead.

Why does this matter for the rally? Because staking yield is one of the key reasons institutional capital flows into ETH rather than Bitcoin. It’s the “productive asset” narrative — ETH earns yield, BTC doesn’t. If EIP-8363 or something like it ever passes, that narrative weakens significantly. The current rally is partly built on the expectation of staking-enabled ETFs arriving soon. A proposal that would cut staking rewards to zero works directly against that expectation.

It’s not an immediate threat. But it’s a cloud on the horizon, and if you’re making a long-term allocation decision on ETH right now, you should know it’s there.

The Bottom Line

ETH just had its best week in over a year. The rally is supported by genuine structural factors: regulatory progress, institutional inflows, a recovering ETH/BTC ratio, and a clear technical breakout above key moving averages.

But underneath the celebration, half of Aave’s $12.2 billion in total value locked is exposed to a concentrated leveraged staking trade that becomes dangerous if liquid staking tokens depeg by as little as 8–9%. The RSI is at 85. And a draft proposal to cut staking rewards to zero is sitting in the EIP repository, shelved but not forgotten.

None of this means the rally is fake. It means the rally is real and the risks are also real, and anyone telling you only one of those things is either selling you something or not paying attention.

If you hold ETH, hold it. If you’re thinking about buying after a 27% move at an RSI of 85, wait for a pullback and a confirmed support level before committing new capital. That’s just my opinion, not advice. And if you don’t understand the Aave leverage situation described above, take the time to understand it — because it affects every ETH holder whether they use Aave or not.

The bear market might be ending. The risks haven’t ended with it. Stay informed, stay patient, and don’t let a green chart make your decisions for you.

Let me know about scams in the crypto or defi space that you are aware of.

Red King Crypto covers DeFi, crypto analysis, blockchain gaming, and scam exposure. Nothing in this article constitutes financial advice.

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