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In a dramatic shift, hedge funds look like ramping up brief positions in Ethereum at a price not seen earlier than, sparking questions on whether or not the second‐largest cryptocurrency by market capitalization might be dealing with troubled waters—or if one thing else is at play.
Based on famend analysts from the Kobeissi Letter (@KobeissiLetter), brief positioning in Ethereum “is now up +40% in ONE WEEK and +500% since November 2024.” Their findings, shared on X, argue that “by no means in historical past have Wall Road hedge funds been so in need of Ethereum, and it’s not even shut,” prompting the query: “What do hedge funds know is coming?”
Huge Ethereum Quick Squeeze Coming?
The Kobeissi Letter’s thread highlights an excessive divergence between Ethereum’s worth motion and futures positioning amongst hedge funds. They level to an particularly unstable interval on February 2, when Ethereum plunged by 37% in simply 60 hours as commerce struggle headlines emerged, wiping out greater than a trillion {dollars} from the crypto market “in HOURS.”
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The analysts be aware how ETH inflows have been sturdy throughout December 2024—whilst hedge funds have been reportedly boosting brief publicity. Based on the Kobeissi Letter: “In simply 3 weeks, ETH noticed +$2 billion of latest funds with a file breaking weekly influx of +$854 million. Nevertheless, hedge funds are betting ETH’s surge and limiting breakouts.”
Additionally they underscore spikes in Ethereum buying and selling quantity, significantly on January 21 (Inauguration Day) and across the February 3 crash. Regardless of the traditionally excessive inflows, Ethereum’s worth has “did not get well the hole decrease whilst one week has handed,” and presently trades “~45% beneath its file excessive set in November 2021.”
One of many greatest unknowns stays why hedge funds are so devoted to shorting ETH. The analysts write: “Potential causes vary from market manipulation, to innocent crypto hedges, to bearish outlook on Ethereum itself. Nevertheless, that is fairly unusual because the Trump Administration and new regulators have favored ETH. Largely as a result of this excessive positioning, Ethereum has considerably underperformed Bitcoin.”
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The Kobeissi Letter concludes its thread by drawing consideration to Bitcoin’s outperformance and poses the query of whether or not a brief squeeze might be within the making: Might Ethereum be organising for a brief squeeze? This excessive positioning means large swings just like the one on February third can be extra frequent. Because the begin of 2024, Bitcoin is up ~12 TIMES as a lot as Ethereum. Is a brief squeeze set to shut this hole?”
Glassnode’s CryptoVizArt Fires Again
Not everybody within the crypto analytics sphere is satisfied that the tidal wave of Ethereum brief positions alerts a bearish outlook. Senior researcher at Glassnode, CryptoVizArt.₿ (@CryptoVizArt), took to X to problem the alarmist takes circulating on social media: “Barchart is screaming, ‘Largest ETH brief in historical past!’ and crypto Twitter is operating round like headless chickens. Significantly, should you fell for this clickbait headline, it’s time to up your sport. Let’s set the file straight.”
In an in depth thread, CryptoVizArt factors out that the broadly shared chart on hedge fund brief positions seemingly represents just one subset of the market (e.g., “Leveraged Funds / Hedge Funds/CTAs”) and doesn’t account for different important market individuals akin to asset managers, non‐reportable merchants, and on‐chain holders. They add that related “large shorts” have been seen in Bitcoin futures as properly, but BTC outperformed ETH throughout the identical interval.
Moreover, CryptoVizArt emphasizes that CME Ether futures are only one sliver of worldwide crypto derivatives. Liquidity on platforms like Binance, Bybit, OKX, in addition to on‐chain positions and spot markets, provide a broader view than anyone alternate’s information would possibly recommend. “One group’s internet brief ≠ the whole market is internet brief. Hedge positions ≠ purely bearish bets.”
Their remaining be aware: a lot of the positioning might be a part of “non‐directional methods—akin to money‐and‐carry,” that are impartial methods used to lock in arbitrage positive factors and are usually not merely a direct guess in opposition to ETH.
At press time, ETH traded at $2,629.
Featured picture created with DALL.E, chart from TradingView.com
