Hedge funds have significantly increased their short positions on Ethereum, reflecting a 500% surge since the US Presidential election in November 2024. This trend emerges as Ethereum struggles to regain momentum, having risen only 5.9% over the past year, notably underperforming Bitcoin, which soared 104% during the same period. Analysts indicate that Ethereum lacks fundamental blockchain activity necessary for a price recovery. The sharp increase in short positions, highlighted by the Kobeissi Letter, indicates a historical high in hedge fund skepticism towards Ethereum. This was exemplified on February 2nd when Ethereum’s value plummeted 37% in just 60 hours amid trade war headlines.
This intense short positioning has led to Ethereum’s underperformance compared to Bitcoin, raising the potential for a “short squeeze,” a scenario in which a price surge forces short sellers to cover positions. Ethereum’s challenges are compounded by growing competition from other layer-1 blockchains. James Wo, CEO of DFG, notes that Ethereum faces dilution from these emerging, high-performance chains, contributing to its price struggles. However, Wo remains optimistic about Ethereum’s vast ecosystem, including significant DeFi protocols like Uniswap, Lido, and Aave.
For Ethereum to regain its footing and potentially reach previous price highs, increased fundamental blockchain activity is crucial. Aurelie Barthere, a principal research analyst at Nansen, stresses the need for Ethereum to step up its use cases, applications, and collaboration with private and public entities, especially in light of recent regulatory developments in the US favoring blockchain and cryptocurrency initiatives.
