Ethereum has lagged behind Bitcoin and other major cryptocurrencies, remaining within a range of $2500 to $4000 over the past year. The Kobeissi Letter attributes this to hedge funds increasing their short positions.
What is happening with Ethereum?
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
— The Kobeissi Letter (@KobeissiLetter) February 9, 2025
According to experts, the volume of shorts on the asset has increased by 40% in the past week and sixfold since November.
“Never in history have hedge funds held so many short positions on Ethereum. Not even close,” the thread states.
Experts noted two significant spikes in trading volume:
- On January 21, the day after Donald Trump’s inauguration, when traders reacted to potential policy changes from the new administration;
- On February 3, when Ethereum experienced a sharp sell-off amid a broader market downturn.
In the latter case, Ethereum’s market capitalization plummeted by 37% from prices 2.5 days prior to the events. The Kobeissi Letter saw this as a repeat of the flash crash of cryptocurrencies in 2010 in the absence of news.
Despite high turnover and recent activity spikes, Ethereum is trading about 45% below its ATH in November 2021.
Analysts cited market manipulation, hedging, and bearish forecasts regarding Ethereum as reasons discussed within the community.
“It’s quite strange since the Trump administration and new regulators are favorable to the asset,” the experts concluded.
Not Just Hedge Funds
In a conversation with The Block, Arete Capital co-founder Ilya Pavelyev explained the persistence of bearish sentiment as due to structural deficiencies and competition from alternative networks like Solana and Base. These offer lower fees and a better user experience for meme coins and AI-related dapps, he added.
“Disappointment in EF […] has led to skepticism about innovation at the pace of rivals, while on the institutional side, TradFi has yet to fully grasp the value proposition. This is evidenced by weak flows into ETFs compared to Bitcoin,” Pavelyev noted.
Another factor has been the decline in NFT trading volumes, which once served as a primary source of speculation and on-chain activity.
According to Pavelyev, unlike competing blockchains, Ethereum also lacks a business development team. This means that major protocols increasingly prefer not to favor any particular network or to launch their own appchains, as in the case of Avalanche, instead of joining the ecosystem of the second-largest cryptocurrency by market capitalization.
“Ethereum may be perceived more as a commodity akin to crude oil. The asset will be traded in BTC rather than USD, which will strengthen the status of digital gold as the dominant. Without proper efforts to develop the ecosystem, Ethereum risks stagnation while opponents continue to capture market share,” concluded the founder of Arete Capital.
Back in April, developer Justin Drake called the second-largest cryptocurrency by market capitalization “ultra-sound money” as opposed to “obsolete” Bitcoin.
At the end of 2024, the expert questioned the direct competition and threat from Solana to Ethereum.