TLDR
- Short interest in Ethereum has seen a massive rise, skyrocketing by 500% since November 2024, and just last week alone there was a 40% increase, setting a new high for Wall Street's short selling activities.
- ETH ETFs had a stellar December 2024, drawing in over $2 billion of new investments, including an unparalleled weekly influx of $854 million.
- A significant amount of the short interest is based on 'carry trades', where hedge funds are short-selling CME futures and buying spot ETH ETFs to benefit from pricing gaps between the markets.
- Currently trading at $2,661, Ethereum is down by 45% from the monumental high of $4,878 reached in November 2021, while Bitcoin has managed to hit several fresh highs in 2024.
- Option market activity hints at negative sentiment in the short run, but more optimistic views for a longer-term horizon.
As the second-biggest player in the crypto market, Ethereum (ETH) is facing an unparalleled wave of short selling from big institutional players. Recent analyses show a staggering 500% jump in short bets post-November 2024, with another 40% increase noticed just in the last week.
Details from the Chicago Mercantile Exchange (CME) reveal that hedge funds currently hold a net short position of 11,341 contracts, the largest ever documented for Ethereum, reflecting a marked rise in Wall Street’s pessimism. This uptick in short positions coincides with a notable period for Ethereum. ETH-related ETFs demonstrated strong performance in December 2024, drawing in over $2 billion in new funds. This included a groundbreaking weekly injection of $854 million, showing immense institutional interest.
Over just one week, Ethereum’s short position surged by 40%, and since November 2024, it has shot up by 500%.
What is happening with Ethereum?
There's been nothing quite like Wall Street hedge funds' current massive short bets on Ethereum.
— The Kobeissi Letter (@KobeissiLetter)
What do hedge funds know is coming?
(a thread) pic.twitter.com/knsyOhYyyt
Thomas Erdösi, who leads product strategies at CF Benchmarks, notes that carry trades are a significant factor in the current short interest. As he explains, a significant slice of the short positions in Ether futures can be traced back to these carry trades, with funds shorting CME futures while buying ETH ETFs to exploit market disparities. February 9, 2025
currently valued at $2,661, it's a noticeable dip of 45% from its landmark high of $4,878 in November 2021. This contrasts with Bitcoin's 2024 performance, which has seen new all-time highs.
The current price of Ethereum Market reports point out that close to $470 million in new short position coincides with around $480 million funneling into spot ETFs, supporting the carry trade narrative. This approach lets institutional investors gain from market inefficiencies rather than merely betting on Ethereum's price going down.
Not all short positions stem from carry trades. Some hedge funds could be making bearish bets in response to Ethereum's recent sluggishness in the market, trailing behind other blockchain networks, and showing weaker performance when stacked against the larger altcoin environment.
Data from the options market provides a wealth of insights into trader outlooks. Current trends underscore a preference for protective puts short-term, suggesting traders are somewhat on edge. Yet, more bullish sentiment comes through in the longer-term options, with calls priced higher.
According to insights from The Kobeissi Letter, these high short interest levels could eventually trigger a 'short squeeze', sending Ethereum prices spiraling upwards if those with short positions rush to buy back assets hastily. for Ethereum’s future price movement.
The volatile market has underscored the weight of these enormous short wagers. Just earlier this month, Ethereum dwindled by 37% over 60 hours, amidst turmoil created by Donald Trump’s proposed trade tariffs affecting Canada, China, and Mexico.
In the midst of these dynamics, BlackRock’s iShares Ethereum Trust ETF (ETHA) plays a crucial role. Hedge funds are eyeing opportunities with this ETF, often pairing it with positions in CME futures.
The prevailing market conditions foster opportunities for savvy institutional traders to gain from basis trades, occasionally seeing Ethereum's basis outpace Bitcoin's, making carry trades in Ethereum particularly enticing.
Optimistic analysts are holding onto positive forecasts for Ethereum's future, with Steno Research hinting at price targets near $8,000 in 2025, even expecting Ethereum to possibly surpass Bitcoin in performance during that time.
The significant short positioning has cast doubts on market stability and potential price swings. As noted in The Kobeissi Letter, “Such extreme positions imply that dramatic shifts, like what occurred on February 3rd, might become the norm.”
Ethereum remains around $2,661 at present, maintaining a stable trajectory despite the unprecedented levels of short selling, eking up by 0.1% over the last day with consistent trading volumes across top exchanges.
With a wealth of experience, Maisie is a prominent journalist in the Crypto & Financial sector, having penned remarkable pieces for Moneycheck.com, level-up-casino-app.com, Computing.net, and serving as Editor at Blockfresh.com.
