Ethereum has been lagging behind Bitcoin and other major cryptocurrencies, staying within the range of $2500 to $4000 for the past year. Experts at The Kobeissi Letter attribute this to hedge funds increasing their short positions on Ethereum.

What is happening with Ethereum?

Short positioning in Ethereum is now up +40% in ONE WEEK and +500% since November 2024.

Never in history have Wall Street hedge funds been so short of Ethereum, and it's not even close.

What do hedge funds know is coming?

(a thread) pic.twitter.com/knsyOhYyyt
— The Kobeissi Letter (@KobeissiLetter) February 9, 2025

According to their calculations, the volume of short positions on the asset has risen by 40% over the past week, and by six times since November.

“In history, hedge funds have never held so many short positions in Ethereum. Not even close,” the experts noted in a thread.

They observed two significant spikes in trading volume:

January 21, the day after Donald Trump’s inauguration, when traders reacted to potential changes in the new administration’s policies;
February 3, when Ethereum experienced a sharp sell-off amid a broader market decline.

In the latter case, Ethereum’s market capitalization plummeted by 37%, with the benchmark taken 2.5 days prior to the event. The Kobeissi Letter compared this to the rapid collapse of cryptocurrencies in 2010, occurring without any news.

Despite high volumes and recent surges in activity, Ethereum is trading ~45% below its all-time high (ATH) in November 2021.

The analysts listed several reasons, including market manipulation, hedging, and bearish forecasts surrounding Ethereum.

“It’s pretty strange, considering that the Trump administration and new regulators are favorable to the asset,” the experts concluded.

Not Just Hedge Funds

In an interview with The Block, Arete Capital co-founder Ilya Paveliev explained the sustained bearish sentiment, pointing to structural flaws and competition from alternative networks like Solana and Base. These networks offer lower fees and better user experiences for meme coins and AI-related dapps, he added.

“Disillusionment with Ethereum […] led to skepticism about the innovation pace of competitors, and from the institutional side, TradFi still hasn’t fully understood the value proposition. This is evident from the weak ETF flows compared to Bitcoin,” Paveliev noted.

Another factor was the decline in NFT trading volumes, which were once a major source of speculation and on-chain activity.

Paveliev believes that unlike competing blockchains, Ethereum lacks a business development team. This means that large protocols are increasingly opting not to commit to any one network, or are launching their own appchains, as seen with Avalanche, rather than joining Ethereum’s ecosystem.

“Ethereum might be seen more as a commodity, like crude oil. The asset will trade in BTC, not USD, which will strengthen the digital gold narrative. Without significant efforts to develop its ecosystem, Ethereum risks stagnation while its competitors continue to capture market share,” concluded the Arete Capital founder.

It’s worth noting that developer Justin Drake once referred to Ethereum as “super-reliable money” compared to “the outdated” Bitcoin. At the end of 2024, he doubted any direct competition or threat from Solana to Ethereum.