Ethereum has seen a significant rise in short positions recently, as hedge funds bet on the asset’s continued decline.
Ethereum has seen a significant rise in short positions recently, as hedge funds bet on the asset’s continued decline. In the past week alone, short positions on Ethereum increased by 40%, and since November 2024, the number has surged by a massive 500%. This has led to concerns about a potential short squeeze, where Ethereum’s price could rise sharply as short sellers are forced to cover their positions, which could further drive up its price.
The surge in short positions coincides with Ethereum's ongoing struggles. Over the past two weeks, the asset has lost 17% of its value, dipping as low as $2,540. At the time of writing, it has slightly recovered to $2,630, but its price continues to face pressure. Much of the difficulty stems from the broader market downturn, with altcoins taking the brunt of the losses while Bitcoin dominance increases, reaching about 62%.
Despite these challenges, Ethereum has still been attracting interest from institutional investors. Ethereum ETFs saw $2 billion in new funds in December 2024, and there was a $420 million inflow into Ethereum spot ETFs just last week. However, these inflows have not been enough to counterbalance the increasing short interest or reverse Ethereum’s price decline. Even as Ethereum has seen some institutional capital entering its market, the surge in short positions has kept its price suppressed.
Experts point to several factors behind the increased short interest. One of the main reasons is Ethereum's underperformance compared to Bitcoin. Over the past year, Bitcoin has surged by 104%, while Ethereum has only increased by 5.9%. This discrepancy has led many investors to bet against Ethereum, with Bitcoin’s strong performance overshadowing Ethereum’s relative weakness.
Adding to the pressure, Ethereum faces growing competition from other layer-1 blockchains. Some analysts believe that Ethereum needs more blockchain activity and development in decentralized finance (DeFi) to regain upward momentum. Ethereum still holds a dominant position in the DeFi space, hosting major protocols like Uniswap, Lido, and Aave. However, as other blockchains continue developing, Ethereum's dominance could be challenged.
The increase in short positions could lead to a short squeeze if Ethereum’s price rises unexpectedly. Short squeezes occur when short sellers are forced to buy back the asset to cover their positions, driving the price even higher. While this could offer a temporary price surge for Ethereum, such events typically don’t last long, and the price may settle down once the squeeze plays out.
For now, Ethereum’s price remains under pressure, but its long-term prospects depend on both market conditions and increased blockchain activity to drive growth and adoption.
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