Ethereum (ETH), the second-largest cryptocurrency by market capitalization, continues to underperform Bitcoin and other major digital assets, trapped in a year-long trading range between $2,500 and $4,000. Analysts attribute this stagnation to a surge in short selling by hedge funds, creating a significant headwind for the cryptocurrency.
While Bitcoin and altcoins like Solana have reached new all-time highs this year, Ether remains approximately 80% below its November 2021 peak of $4,800. According to market analysis firm The Kobeissi Letter, hedge funds have dramatically increased their bearish bets on Ether. “Short positioning in Ethereum is now up +40% in one week and +500% since November 2024,” the firm stated. “Never in history have Wall Street hedge funds been so short of Ethereum, and it’s not even close.” This unprecedented level of short selling, analysts argue, has effectively capped Ether’s price, preventing it from mirroring Bitcoin’s upward momentum.
Despite two recent spikes in trading volume, Ether’s price has failed to break out of its slump. The first surge occurred on January 21st, the day after former President Trump’s inauguration, as traders reacted to potential policy changes. A second spike followed on February 3rd during a broader market downturn, which saw Ether experience a sharp sell-off. However, neither surge translated into sustained price gains.
“This brings the next question, why are hedge funds so dedicated to shorting Ethereum?” The Kobeissi Letter posed.
Ilya Paveliev, founding partner of Arete Capital, suggests that both structural and market-driven weaknesses have made Ether vulnerable. He notes that retail investors, once a key driver of Ether speculation, are increasingly migrating to alternative networks like Solana and Base, drawn by lower fees and a more user-friendly experience for memecoins and AI-driven applications.
“There is frustration with the Ethereum Foundation—seen as wealthy but slow-moving—has led to skepticism about its ability to drive innovation at the pace of competing chains,” Paveliev explained. He also pointed to the muted interest from traditional finance, evidenced by comparatively low ETF inflows compared to Bitcoin. “On the institutional side, traditional finance capital has yet to fully grasp Ethereum’s value proposition,” he added.
Looking ahead, Paveliev believes Ethereum may eventually be perceived more like a commodity, similar to crude oil, and trade primarily against Bitcoin rather than the US dollar, further solidifying Bitcoin’s dominance in the crypto market. “Without aggressive ecosystem growth efforts,” he warned, “Ethereum risks stagnation while competitors continue capturing market share.”
