In a significant development, hedge funds are intensifying their short positions in Ethereum, raising questions about the future of the world's second-largest cryptocurrency by market capitalization. Observers are considering whether this surge indicates potential struggles for Ethereum or if other factors are influencing these moves.
Renowned analysts from the Kobeissi Letter have noted on social media that short positions in Ethereum have increased by 40% in just one week and by 500% since November 2024. These analysts highlight that Wall Street hedge funds have never held such sizable short positions in Ethereum, leading some to question, "What do hedge funds foresee?"
The Kobeissi Letter discusses a notable disparity between Ethereum's current price movements and the futures positioning of hedge funds. They recall a period of extreme volatility on February 2 when Ethereum's price dropped by 37% within 60 hours due to trade war-related news, erasing over a trillion dollars from the cryptocurrency market swiftly.
Analysts observed strong Ethereum inflows in December 2024, despite heightened short positions by hedge funds. They report $2 billion in new Ethereum investments over three weeks, including a record weekly inflow of $854 million. Yet, hedge funds continue betting against significant price surges for Ethereum.
Trading volume spikes were highlighted on dates such as January 21 and around the February 3 crash. Despite substantial inflows, Ethereum's price has not recovered, currently sitting approximately 45% below its November 2021 high. The reasons behind hedge funds' commitment to shorting Ethereum remain unclear. Speculations range from market manipulation to bearish outlooks on Ethereum, despite favorable policies from the Trump Administration and new regulators. As a result, Ethereum has notably underperformed compared to Bitcoin.
The Kobeissi Letter concludes by pointing out Bitcoin's superior performance, raising the question of a potential short squeeze for Ethereum. Since early 2024, Bitcoin's growth has outpaced Ethereum's twelvefold. Is a short squeeze on the horizon to narrow this disparity?
Not everyone in the crypto analysis community agrees with the bearish implications of increased Ethereum short positions. Senior researcher at Glassnode, CryptoVizArt.₿, expressed skepticism on social media, criticizing alarmist views: “If you're falling for these clickbait headlines, it's time to elevate your understanding.”
CryptoVizArt's detailed discussion notes that the widely circulated chart on hedge fund short positions may only depict a single market segment, excluding crucial players like asset managers and on-chain holders. They also mention similar historical "massive shorts" in Bitcoin that did not prevent its outperformance against Ethereum during the same timeframe.
Moreover, CryptoVizArt stresses that CME Ether futures are just one part of the global crypto derivatives landscape. Platforms such as Binance and Bybit, along with on-chain positions, offer broader market perspectives. They argue that a group holding net short positions does not signify a completely bearish market outlook, and many hedge positions are part of neutral strategies such as cash-and-carry arbitrage.
Disclaimer: The information provided in this article is for educational purposes only and should not be considered financial or legal advice. Always conduct your own research or consult a professional when dealing with cryptocurrency assets.