While Ethereum believers continue holding their breath for a comeback, hedge funds are betting big on more pain ahead. The numbers are startling – short positions have skyrocketed 500% since November 2024, with hedge funds now holding a record 11,341 short contracts on CME futures. That’s a whopping $1.45 billion betting against crypto’s second-largest asset.
The recent price action isn’t helping the bulls’ case. Ethereum took a brutal beating, dropping 37% in just 60 hours on February 2, 2025. Ouch. The ETH/BTC ratio has plunged to its lowest level in four years, with Ethereum now trading 50% below its all-time high of $4,848. Short sellers on Deribit seem confident, targeting $2,000 as their sweet spot. The surge in excessive short positions has made the market increasingly vulnerable to panic movements. The percentage of ETH holders in profit has plummeted to 64.19 percent, marking a significant decline from early 2025.
But here’s where it gets interesting. While hedge funds pile into short positions, they’re simultaneously scooping up spot ETH through new ETFs. BlackRock’s iShares Ethereum Trust ETF has become particularly popular among these sophisticated players. Last week alone, institutions poured $790 million into spot Ethereum ETFs, outpacing Bitcoin inflows for the first time in 2025. The rise of Layer 2 networks has significantly reduced transaction costs, making Ethereum more attractive for institutional investors.
What gives? The answer might lie in the carry trade – a classic Wall Street move where traders short futures while going long on spot, pocketing the difference. It’s less about doom and gloom predictions and more about exploiting market inefficiencies. Other motivations include hedging against altcoin exposure and arbitrage opportunities between futures and spot markets.
The options market tells an intriguing story too. Near-term put options show plenty of fear, but longer-dated calls are surprisingly expensive. Translation: traders expect short-term pain but long-term gain.
Competition from other Layer 1 blockchains and Ethereum’s recent underperformance haven’t helped sentiment either. The massive spike in short interest – jumping 40% in just one week – suggests hedge funds aren’t done placing their bets yet.
Whether it’s savvy market neutral strategies or outright bearish conviction, one thing’s clear: the smart money isn’t sitting on the sidelines.
