Hedge Funds Increase Short Positions on Ethereum by 500% in Three Months
According to The Kobeissi Letter, a capital market commentary magazine, hedge funds have increased their short positions on Ethereum by 500% since November 2024, with a 40% increase in just one week. This unprecedented level of short selling on Wall Street indicates a strong bearish sentiment among investment institutions towards the future performance of Ethereum.
On February 2, 2025, following news related to the trade war and tariff executive orders, Ethereum experienced a 37% drop in just two days, similar to the flash crash event in the stock market in 2010. This decline resulted in the cryptocurrency market losing over 1 trillion dollars in market capitalization within hours.
Despite the increased short pressure since December 2024, Ethereum has attracted 2 billion dollars in new capital within three weeks, reaching a historical high of 854 million dollars in a single week.
Additionally, Ethereum’s trading volume has been remarkably strong recently, especially during market downturns on January 21 (US Presidential Inauguration Day) and February 3.
However, despite other major cryptocurrencies like Bitcoin experiencing a breakthrough in price, Ethereum has not been able to recover from its previous drop, with the current trading price still approximately 45% lower than its historical high in November 2021.
The Kobeissi Letter suggests several reasons for the long-term price weakness and hedge funds’ bearish outlook. They dismiss concerns about the US Securities and Exchange Commission (SEC) classifying Ethereum as a security, as it seems unlikely under the leadership of the new SEC appointed by the Trump administration. In fact, Eric Trump has even stated that “now is a good time to increase holdings in Ethereum,” briefly driving up its price.
They believe the reasons behind the bearish sentiment may include market manipulation and hedging strategies by institutions, as well as pessimistic expectations for Ethereum’s own future. Recent criticism of Ethereum co-founder Vitalik Buterin for his lack of focus on monetary gains and internal conflicts within the foundation have also contributed to the negative perception of Ethereum.
Lastly, since the beginning of 2024, Bitcoin has seen a 12-fold increase in value compared to Ethereum, resulting in extreme short positions in the market. This could potentially lead to more frequent episodes of significant volatility, similar to the one observed on February 3.
This situation has sparked speculation about a possible short squeeze in Ethereum, where short sellers are forced to buy back Ethereum, driving up the price and narrowing the performance gap with Bitcoin. However, the actual market conditions still require time to validate this hypothesis.
Risk Warning: Cryptocurrency investments are highly risky, and prices may experience significant fluctuations, potentially resulting in the loss of your entire investment. Please carefully evaluate the risks.