Ethereum, the second-largest cryptocurrency by market cap, is under significant pressure as hedge funds ramp up their bearish bets. Despite signs of recovery across the broader crypto market, Ethereum seems to be struggling. According to The Kobeissi Letter, short positions against ETH have surged by 500% since November 2024, reaching all-time highs. This shift in sentiment indicates that major players are betting on Ethereum’s price decline.
What is happening with Ethereum?
— The Kobeissi Letter (@KobeissiLetter) February 9, 2025
Short positioning in Ethereum is now up +40% in ONE WEEK and +500% since November 2024.
Never in history have Wall Street hedge funds been so short of Ethereum, and it's not even close.
What do hedge funds know is coming?
(a thread) pic.twitter.com/knsyOhYyyt
Why is Ethereum Struggling?
While Bitcoin has surged by over 100% in 2024, Ethereum has gained only 3.5%. This disparity has widened the gap between the two, with Bitcoin’s market cap now six times that of Ethereum. The price of ETH currently hovers around $2,500, down nearly 45% from its all-time high in November 2021. Ethereum’s slow performance compared to Bitcoin has raised concerns about its long-term outlook.
Record Short Positions and Market Impact
The dramatic rise in short positions has had a tangible effect on the market. Futures contracts on the CME recently peaked at 11,341, with bearish bets increasing by over 40% in just one week. The aggressive shorting has put further downward pressure on Ethereum’s price, amplifying concerns about potential market volatility.
Could a Short Squeeze Trigger Ethereum’s Recovery?
Given the extreme short positioning, Ethereum could be poised for a short squeeze. This occurs when short-sellers are forced to cover their positions by buying back ETH, potentially driving the price up. With heightened volatility, sudden price swings, such as the 37% crash on February 2 following policy changes by the Trump administration, could spark a chain reaction.
Ethereum’s high gas fees, which hamper Layer-2 network performance, are another significant issue. Some, like X user Lola, suggest using tokens like SHIB for transaction costs to improve scalability and lower fees. Despite continued capital inflows, including $2 billion in December 2024, Ethereum remains under pressure, facing both market sentiment challenges and technical hurdles.
With Bitcoin outpacing Ethereum, the future of ETH hangs in the balance. Only strong developments could shift the market’s current bearish outlook.
Disclaimer: The information in this article is for general purposes only and does not constitute financial advice. The author’s views are personal and may not reflect the views of Chain Affairs. Before making any investment decisions, you should always conduct your own research. Chain Affairs is not responsible for any financial losses.
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