Ethereum faces record short bets as hedge funds increase positions

Hedge funds have significantly increased their short positions against Ethereum (CRYPTO:ETH), with these positions surging 500% since November 2024.

According to data shared by The Kobeissi Letter, Ethereum short positions have also risen 40% in one week.

As the world's second-largest cryptocurrency struggles to gain momentum, the increase in short positions has caught the attention of the crypto community.

"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," the Kobeissi Letter stated.  

Ethereum's underperformance compared to Bitcoin is one reason for the rise in short positions.

Since the US Presidential election in November 2024, short positions on Ethereum have risen more than 500%, according to data shared by the Kobeissi Letter.

In comparison to Ethereum's 5.9% rise over the past year, Bitcoin (CRYPTO:BTC) surged 104%.

The rising supply that has gone back to pre-merge levels and the slumping activity on the Ethereum network are some of the reasons why traders have become bearish on ETH.

Despite this negative sentiment, the altcoin’s recognition by World Liberty Finance and Eric Trump's tweet that now was “a great time to add ETH” could boost Ethereum’s long-term outlook.

Moreover, institutions seem to be betting big on Ethereum after recent weekly inflows of $420 million into spot Ethereum exchange-traded funds.

Analysts suggest that Ethereum may also lack fundamental blockchain activity for an Ether price recovery.

Furthermore, Ethereum faces growing competition among other layer-1 blockchains, which may be another fundamental reason for Ether’s underperforming Bitcoin price.

However, others believe that Ethereum could benefit from increased collaboration with private and public sector entities, particularly in the US, given recent regulatory momentum in favor of blockchain and crypto.

With record short positions in place, Ethereum faces the potential for a short squeeze, which occurs when the price of an asset makes a sharp increase, prompting short sellers to buy Ether to avoid greater losses.

However, the current market conditions suggest that Ethereum may continue to struggle in the short term.

At the time of reporting, the Ethereum (ETH) price was $2,681.15.