I talked with my friend about Balloon Cloth
and he shared with me his experience. He couldn't tell me all his secrets but he gave me few tips.
What level do I need to obtain balloon cloth on the new servers?
He made it on few characters - the lowest level was level 6.
He shared with me his screenshots:
Level 7

Level 9

What is the best tactic to obtain Balloon Cloth? (on new servers and merged servers)
New servers:
- Talk with Npc Guide Kunibert on Oramond
(Hi/escort/yes)

Npc will teleport you to Oramond depo

People can react funny

- Buy as many health potions as possible 
- Change your Residence on Rathleton (you'll probably die several times but the reward is worth it)

- Remember to take new backpack if you die
- He recomended this way:

Merged servers:
- Change residence on Rathleton so you can be faster than others on Balloon Cloth's spawn place.