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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‐largest cryptocurrency by market capitalization could be facing troubled waters—or if something else is at play.
According to renowned analysts from the Kobeissi Letter (@KobeissiLetter), short positioning in Ethereum “is now up +40% in ONE WEEK and +500% since November 2024.” Their findings, shared on X, argue that “never in history have Wall Street hedge funds been so short of Ethereum, and it’s not even close,” prompting the question: “What do hedge funds know is coming?”
Massive Ethereum Short Squeeze Coming?
The Kobeissi Letter’s thread highlights an extreme divergence between Ethereum’s 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 “in HOURS.”
The analysts note how ETH inflows were robust during December 2024—even as hedge funds were reportedly boosting short exposure. According to the Kobeissi Letter: “In 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’s surge and limiting breakouts.”
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’s price has “failed to recover the gap lower even as one week has passed,” and currently trades “~45% below its record high set in November 2021.”
One of the biggest unknowns remains why hedge funds are so dedicated to shorting ETH. The analysts write: “Potential reasons range from market manipulation, to harmless crypto hedges, to bearish outlook on Ethereum itself. However, this is rather strange as the Trump Administration and new regulators have favored ETH. Largely due to this extreme positioning, Ethereum has significantly underperformed Bitcoin.”
The Kobeissi Letter concludes its thread by drawing attention to Bitcoin’s 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 set to close this gap?”
Glassnode’s CryptoVizArt Fires Back
Not everyone in the crypto analytics sphere is convinced that the tidal wave of Ethereum short positions signals a bearish outlook. Senior researcher at Glassnode, CryptoVizArt.₿ (@CryptoVizArt), took to X to challenge the alarmist takes circulating on social media: “Barchart is screaming, ‘Largest ETH short in history!’ and crypto Twitter is running around like headless chickens. Seriously, if you fell for this clickbait headline, it’s time to up your game. Let’s set the record straight.”
In a detailed thread, CryptoVizArt points out that the widely shared chart on hedge fund short positions likely represents only one subset of the market (e.g., “Leveraged Funds / Hedge Funds/CTAs”) and does not account for other significant market participants such as asset managers, non‐reportable traders, and on‐chain holders. They add that similar “massive shorts” were seen in Bitcoin futures as well, yet BTC outperformed ETH during the same period.
Furthermore, CryptoVizArt emphasizes that CME Ether futures are just one sliver of global crypto derivatives. Liquidity on platforms like Binance, Bybit, OKX, as well as on‐chain positions and spot markets, offer a broader view than any one exchange’s data might suggest. “One group’s net short ≠ the entire market is net short. Hedge positions ≠ purely bearish bets.”
Their final note: much of the positioning could be part of “non‐directional strategies—such as cash‐and‐carry,” which are neutral strategies used to lock in arbitrage gains and are not simply a direct bet against ETH.
At press time, ETH traded at $2,629.
