Will the short positions in Ethereum increase by 40% in a week? Is it impossible for the bears to recover?
Hedge funds’ short positions in Ethereum have surged by 500% since November 2024, with a 40% increase in just one week, according to the financial market commentary magazine The Kobeissi Letter. This unprecedented level of shorting indicates a strong bearish sentiment among investment institutions regarding Ethereum’s future performance.
On February 2, 2025, Ethereum experienced a 37% drop within two days following news related to trade wars and tariff executive orders. This decline caused the cryptocurrency market capitalization to evaporate over $1 trillion within a few hours, resembling the flash crash event in the stock market in 2010.
Despite the increased short pressure since December 2024, Ethereum has attracted $2 billion in new capital within three weeks, reaching a historical high of $854 million in a single week in December 2024.
Additionally, Ethereum’s recent trading volume has been strong, especially during the market downturn on January 21 (Inauguration Day) and February 3. However, while other major cryptocurrencies like Bitcoin have experienced significant price recoveries, Ethereum has not been able to fill the previous price gap and currently trades about 45% lower than its historical high in November 2021.
Regarding the reasons behind the long-term price weakness and hedge funds’ bearish stance, The Kobeissi Letter dismisses concerns about the U.S. Securities and Exchange Commission (SEC) categorizing Ethereum as a security, as the possibility seems unlikely under the leadership of the newly appointed SEC in the Trump administration. In fact, Eric Trump has even stated that “now is a good time to buy Ethereum,” briefly driving up its price.
The potential reasons behind the hedge funds’ bearish position include market manipulation and hedging strategies by the institutions themselves, as well as pessimistic expectations about Ethereum’s future prospects. The continuous criticism of Ethereum co-founder Vitalik Buterin for not being profit-oriented and the internal turmoil within the foundation have been criticized by the crypto community. Therefore, the bearish sentiment and the significant shorting actions seem to have been anticipated.
Lastly, since the beginning of 2024, Bitcoin has seen a price increase of approximately 12 times that of Ethereum, resulting in extremely extreme short positions in the market. Similar to the significant volatility on February 3, the market speculates that there could be more frequent occurrences of short covering, where shorts are forced to buy back Ethereum, thereby driving up the price and narrowing the performance gap with Bitcoin. However, the actual market situation still needs time to confirm these speculations.
It is important to note that cryptocurrency investments carry high risks, and prices can fluctuate dramatically, potentially resulting in the loss of the entire invested capital. Therefore, it is crucial to carefully assess the risks involved.
