Ethereum, the second-largest cryptocurrency by market capitalization, is under mounting pressure as hedge funds ramp up their bearish bets. Despite the broader crypto market showing signs of recovery, Ethereum has been lagging, with its price hovering around $2,500—down 2% in the last 24 hours and nearly 45% below its all-time high in November 2021. The surge in short positions against Ethereum, which has spiked by 500% since November 2024, is raising alarms about its near-term stability.
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
Record-Breaking Short Positions Signal Growing Concerns
The recent rise in short positions has created ripples throughout the crypto market, with futures contracts on the CME reaching a peak of 11,341. In just one week, bearish bets against Ethereum jumped over 40%, reflecting growing skepticism about the cryptocurrency’s prospects. Hedge funds appear to be betting heavily on a further price decline, which could lead to increased market volatility.
With such extreme short positioning, Ethereum could be in danger of a dramatic short squeeze. This occurs when short-sellers are forced to buy back the asset to cover their positions, triggering a sharp price rally. Given the current market dynamics, price fluctuations akin to the February 3rd crash could become more frequent.
Bitcoin Dominates, Leaving Ethereum Behind
While Bitcoin has experienced a rally in 2024, gaining more than 100%, Ethereum has only managed a modest 3.5% increase. This disparity has widened the gap between the two, with Bitcoin’s market cap now six times larger than Ethereum’s—a level not seen since 2020. Ethereum’s underperformance has raised doubts about its long-term goals, especially compared to Bitcoin, which continues to dominate as altcoins struggle in a challenging regulatory environment.
Major Sell-Offs and Market Reactions
The aggressive shorting coincided with a significant price drop on February 2, when Ethereum plummeted by 37% within 60 hours following trade policy announcements from the Trump administration. This crash wiped out over $1 trillion from the broader crypto market, drawing comparisons to the infamous 2010 stock market flash crash. Despite strong capital inflows into Ethereum, with over $2 billion invested in December 2024 alone, the bearish trend persists.
Ethereum’s high gas fees are seen as a major issue, affecting its Layer-2 network performance. An X user, Lola, suggests using SHIB, Ethereum’s largest native token, as a gas token to help reduce transaction costs. Shifting Ethereum’s role toward a store of value, while utilizing SHIB for transactions, could help stabilize Ethereum’s price and improve its long-term outlook.
As Ethereum faces intense competition with Bitcoin, heavy short positions signal the potential for further volatility unless a positive development emerges. Until then, Ethereum may continue to struggle both against market sentiment and its technical challenges.
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 CoinBrief.io. Before making any investment decisions, you should always conduct your own research. Coin Brief is not responsible for any financial losses.
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