Ethereum is facing pressure from Wall Street hedge funds, which are aggressively opening short positions against the second-largest cryptocurrency by market cap. According to The Kobeissi Letter, short positions on ETH have increased by 40% over the past week and by 500% since November 2024.
This represents a record level for the market. Analysts highlight that such an aggressive bearish sentiment among institutional investors has never been observed before.
Volatility Intensifies
The increase in short positions coincided with sharp fluctuations in Ethereum's price. On February 2, the price of ETH dropped by 37% within 60 hours, leading to mass liquidations and a reduction of over $1 trillion in the overall crypto market capitalization.
This movement resembled the flash crash of the stock market in 2010, but without any clear fundamental reasons behind it.
Despite this, trading volumes for Ethereum remain high. Since December 2024, over $2 billion has been invested in ETH, including a record $854 million in just one week. However, the price has been unable to break through key resistance levels, which analysts attribute to selling pressure.
Currently, ETH is trading almost 45% below its all-time high set in November 2021. The gap between Ethereum and Bitcoin continues to widen, with BTC now surpassing ETH's market cap by six times — the largest gap since 2020.
Why Hedge Funds Are Betting Against ETH
The reasons behind this aggressive bet against Ethereum remain a topic of debate. One possible explanation is concerns that the SEC might classify ETH as a security. However, this risk has decreased after the change in administration in the U.S.
Interestingly, Eric Trump recently hinted at the potential of ETH, posting “it’s a great time to add ETH,” which triggered a short-term price rise but didn’t change the overall trend.
Other possible reasons for the short positions include:
- Market manipulation by large players.
- Risk hedging by institutional investors.
- Pessimistic forecasts for Ethereum's future.
Could a Short Squeeze Happen
Experts note that such a large amount of short positions makes the market vulnerable to a so-called short squeeze — a situation where a sharp rise in price forces sellers to close their positions en masse, leading to even higher prices.
Since the beginning of 2024, Bitcoin has risen 12 times more than Ethereum. If the pressure on ETH eases, it could lead to a powerful upward move, forcing hedge funds to liquidate their shorts.
Will There Be a New Altseason
Ethereum's growth is traditionally seen as a trigger for the start of an altseason — a period of strong growth for alternative cryptocurrencies. However, doubts have started to emerge about whether this scenario will play out again.
Analyst Ali Martinez believes that a new altseason is unlikely due to the vast number of altcoins in the market. According to him, there are now over 36.4 million such assets, whereas in 2017–2018, there were fewer than 3,000, and in 2013-2014, only about 500.
As a result, technological altcoins have lost their speculative appeal, as millions of new tokens create high competition for attention and investor capital, the specialist argues.
Thus, even if Ethereum experiences strong growth, it does not guarantee an automatic flow of capital into altcoins, as happened in previous market cycles.
This post is for informational purposes only and is not an ad or investment advice. Please do your own research making any decisions.