Hedge Funds Bet Big on Ethereum's Decline

Ethereum is at the heart of unprecedented selling pressure. While Bitcoin continues its strong performance, the second crypto in the market struggles to regain its luster. A critical signal for investors? Since November 2024, short positions on Ethereum have exploded by 500 %, a level never reached before. Hedge funds, these seasoned institutional investors, are betting massively on a collapse in the price of ETH, further intensifying market volatility. If the extreme pessimism in the markets were to reverse, a brutal short squeeze could cause a rapid rebound in prices.

Hedge Funds Intensify Pressure on Ethereum

The short positions on ETH are multiplying at an unprecedented rate. According to data from Kobeissi Letter, the amount of Ethereum shorted surged by 40 % in just one week, marking a concerning acceleration of the bearish trend. “Never in the history of Wall Street have hedge funds bet so much against Ethereum, and the gap is considerable,” claims Kobeissi Letter in a publication on February 10, 2025, on the X platform (formerly Twitter).

This aggressive strategy has already had a significant impact on the market. On February 2, Ethereum experienced a 37 % collapse in just 60 hours, a drop directly linked to the excessive accumulation of short positions. These institutional investors seem to believe that Ethereum’s trajectory is destined to decline, making it particularly vulnerable to panic movements.

Ethereum in Search of a Bullish Catalyst

Beyond speculative strategies, Ethereum faces increased competition. James Wo, CEO of DFG, highlights the rise of layer 1 (L1) blockchains as a key factor in ETH’s weakening. “The proliferation of new blockchains dilutes interest in Ethereum, complicating its ascent,” he explains. Unlike Bitcoin, perceived as a safe haven asset, Ethereum must constantly prove its utility and adoption to justify its valuation.

However, all is not lost. Ethereum retains a dominant DeFi ecosystem with major protocols like Uniswap, Lido, and Aave. According to Aurélie Barthere, an analyst at Nansen, the solution to reverse the trend lies in increasing on-chain activity and greater integration with public and private institutions. A more pronounced institutional adoption, particularly in the United States, could revitalize demand and counter the selling pressure from hedge funds.

If bearish pressure continues to intensify, Ethereum could be trapped in a downward spiral. However, excessive accumulation of short positions creates a risk of a short squeeze: a rapid bullish movement that can force sellers to buy back hastily, causing prices to surge. The future of ETH will therefore depend on its ability to revive its ecosystem and regain market confidence. In this ultra-speculative environment, caution is still advised for investors.