USDEthereum Faces 500% Surge in Short Bets as Hedge Funds Double Down
Institutional Investors Increase Bearish Pressure on Ethereum
Ethereum is facing intense market pressure as hedge funds significantly increase short positions, betting on further price declines. Short positions against ETH have surged by over 500% since the U.S. presidential election in November 2024, marking an unprecedented level of bearish sentiment among institutional players.
Over the past week alone, short positioning jumped another 40%, reflecting growing pessimism over Ethereum’s near-term prospects. This wave of aggressive shorting contributed to a sharp 37% price drop within just 60 hours on February 2, coinciding with market turmoil triggered by trade war headlines.
Ethereum’s struggles are further highlighted by its lackluster performance against Bitcoin. Over the past year, ETH has gained only 5.9%, whereas Bitcoin has soared by 104%, underscoring the widening performance gap between the two largest cryptocurrencies.
According to data from the Kobeissi Letter, Wall Street hedge funds have never been this bearish on Ethereum, amplifying concerns about the network’s ability to compete in an increasingly fragmented blockchain landscape. DFG CEO James Wo attributes Ethereum’s underperformance to rising competition from high-performance Layer 1 blockchains, which continue to siphon market share and developer attention.
Nansen principal research analyst Aurelie Barthere believes Ethereum must see a surge in blockchain activity to reclaim critical price levels, particularly the $4,000 mark.
Ethereum Holders Suffer as Market Confidence Weakens
Ethereum’s latest downturn has pushed many investors into the red, with its price plunging 18% in the past month and breaking below the critical $3,000 support level. According to Glassnode, ETH is now trading at approximately $2,675, with 64.19% of its supply still in profit—down sharply from 83% at the start of the year. This translates to 48 million ETH out of the total 121 million ETH supply remaining in profit, marking the lowest profitability level since October 2023.
Market sentiment continues to deteriorate as open interest in Ethereum futures has collapsed by 31% since early February, now standing at $22 billion. This sharp decline in open interest, which measures the total number of outstanding futures contracts, signals reduced investor confidence and increased risk aversion.
Similar to Glassnode, data from Santiment suggests that panic selling among retail investors has intensified the downward pressure, with Ethereum’s overall profitability dropping from 97.5% to 66.9% in just two months. The total supply of ETH in profit has fallen to 99.8 million, a level not seen since November 2023.
Despite the gloomy outlook, some analysts suggest that historical patterns indicate downturns of this magnitude often precede recovery phases. Key catalysts such as regulatory clarity, further Ethereum 2.0 developments, and broader macroeconomic improvements could help stabilize the market. Institutional investors may also step in once the panic subsides, potentially triggering a sharp price reversal.
Ethereum ETPs See Strong Inflows Despite Market Decline
While Ethereum struggles in the broader market, institutional interest in Ether-based exchange-traded products (ETPs) has been on the rise. The past week saw crypto ETP inflows hit $1.3 billion, with Ethereum leading the pack. ETH-based ETPs attracted $793 million in inflows, outpacing Bitcoin’s ETP inflows by 95%—a rare occurrence that marked the first time in 2025 that Ethereum outperformed Bitcoin in this category. The spike in inflows followed Ethereum’s price drop below $2,700 on February 6, indicating that investors were eager to buy the dip.
Despite this short-term surge, Bitcoin still holds a significant lead in year-to-date inflows, amassing nearly $6 billion—505% more than Ethereum’s total inflows so far this year. Other crypto assets also saw notable inflows, with XRP ETPs rising 45% to $21 million and Solana ETPs surging 148% to $11.2 million. However, total crypto ETP assets under management (AUM) declined by 4% over the past week, dropping to $163 billion. This figure remains 11% below the all-time high of $181 billion recorded in late January.
BlackRock’s iShares Bitcoin Trust (IBIT) continued to dominate inflows, adding $315 million, while Fidelity’s Wise Origin Bitcoin Fund recorded the largest outflows, totaling $217 million. Ethereum’s ability to sustain strong ETP inflows despite its broader price decline suggests that institutional investors may still see long-term value in the asset, even as the market experiences heightened volatility.
Ethereum’s Path Forward Hinges on Key Market Factors
Ethereum remains under heavy pressure, with hedge funds aggressively shorting it and retail investors showing signs of capitulation. The network’s struggle to outperform Bitcoin, coupled with reduced investor confidence and increased competition from rival Layer 1 blockchains, has contributed to its lackluster performance. However, strong inflows into Ethereum ETPs suggest that institutional investors are not entirely turning away from the asset.
Key price levels will determine Ethereum’s next move, with support at $2,553 acting as a crucial threshold. A break below this level could send ETH tumbling to $2,224, while a rebound could see it climb back to $2,811.
Market sentiment will depend on blockchain adoption, regulatory developments, and broader macroeconomic conditions, which will play a pivotal role in shaping Ethereum’s trajectory in the months ahead.
This article has been refined and enhanced by ChatGPT.
