In a dramatic shift, hedge funds appear to be ramping up short positions in Ethereum at a rate not seen before, sparking questions on whether the second\u2010largest cryptocurrency by market capitalization could be facing troubled waters\u2014or if something else is at play.<\/p>\n
According to renowned analysts from the Kobeissi Letter (@KobeissiLetter), short positioning in Ethereum \u201cis now up +40% in ONE WEEK and +500% since November 2024.\u201d Their findings, shared<\/a> on X, argue that \u201cnever in history have Wall Street hedge funds been so short of Ethereum, and it\u2019s not even close,\u201d prompting the question: \u201cWhat do hedge funds know is coming?\u201d<\/p>\n The Kobeissi Letter\u2019s thread highlights an extreme divergence between Ethereum\u2019s price action and futures positioning among hedge funds. They point to an especially volatile period on February 2, when Ethereum plunged by 37% in just 60 hours as trade war headlines emerged, wiping out more than a trillion dollars from the crypto market \u201cin HOURS.\u201d<\/p>\n The analysts note how ETH inflows were robust during December 2024\u2014even as hedge funds were reportedly boosting short exposure. According to the Kobeissi Letter: \u201cIn just 3 weeks, ETH saw +$2 billion of new funds with a record breaking weekly inflow of +$854 million. However, hedge funds are betting ETH\u2019s surge and limiting breakouts.\u201d<\/p>\n They also underscore spikes in Ethereum trading volume, particularly on January 21 (Inauguration Day) and around the February 3 crash. Despite the historically high inflows, Ethereum\u2019s price has \u201cfailed to recover the gap lower even as one week has passed,\u201d and currently trades \u201c~45% below its record high set in November 2021.\u201d<\/p>\n One of the biggest unknowns remains why hedge funds are so dedicated to shorting ETH. The analysts write: \u201cPotential reasons range from market manipulation<\/a>, to harmless crypto hedges, to bearish outlook on Ethereum itself. However, this is rather strange as the Trump Administration and new regulators have favored<\/a> ETH. Largely due to this extreme positioning, Ethereum has significantly underperformed Bitcoin.\u201d<\/p>\n The Kobeissi Letter concludes its thread by drawing attention to Bitcoin\u2019s outperformance and poses the question of whether a short squeeze could be in the making: Could Ethereum be setting up for a short squeeze? This extreme positioning means big swings like the one on February 3rd will be more common. Since the start of 2024, Bitcoin is up ~12 TIMES as much as Ethereum. Is a short squeeze<\/a> set to close this gap?\u201d<\/p>\nMassive Ethereum Short Squeeze Coming?<\/h2>\n
Glassnode\u2019s CryptoVizArt Fires Back<\/h2>\n