Ether underperforms as hedge funds ramp up short positions, analysts say

Ether has been underperforming bitcoin and other major cryptocurrencies, struggling to break out of a year-long trading range between $2,500 and $4,000.

Analysts point to months of significant short positioning of hedge funds as a major factor behind ether's stagnation. While bitcoin and altcoins like solana have hit record highs since the beginning of the year, ether's price remains roughly 80% below its record of $4,800, reached in November 2021.

According to The Kobeissi Letter, the subdued price is partly due to hedge funds increasing bearish bets on ether, stating, “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 analysts argued that these heavy short positions have effectively capped ether's ability to break out of its long-term range, preventing it from following bitcoin’s upward trajectory.

Despite strong trading volume in recent weeks, ether's price action remains subdued.

Two significant surges in trading volume have occurred, the first on Jan. 21, the day after Donald Trump’s inauguration, when traders reacted to potential policy shifts under the new administration. The second spike happened on Feb. 3, when ether experienced a sharp sell-off during a broader market downturn. However, despite these surges in trading activity, ether has struggled to reclaim the price levels lost during its recent decline.

"This brings the next question, why are hedge funds so dedicated to shorting Ethereum?" the Kobeissi Letter said.

Reasons driving short Ethereum positions 

According to Arete Capital founding partner Ilya Paveliev, Ethereum faces both structural and market-driven weaknesses that have made it vulnerable to shorting. Paveliev said that retail traders, once the driving force behind ether speculation, have increasingly moved to alternative networks like Solana and Base , which offer cheaper fees and a better user 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, and on the institutional side, traditional finance capital has yet to fully grasp Ethereum’s value proposition, as evidenced by muted ETF flows compared to Bitcoin," Paveliev told The Block.

Another factor weighing on ether’s performance is the decline in NFT trading volumes, which once provided a major source of speculation and network activity but have now dropped significantly. Unlike some competing blockchains, Paveliev suggested that Ethereum also lacks a centralized business development team, meaning major protocols are increasingly opting to go chain-agnostic or launch their own app chains, such as the case with Avalanche , rather than committing to the Ethereum ecosystem.

"Ethereum may eventually be perceived more like a commodity, akin to crude oil, and that it will likely trade in Bitcoin terms rather than U.S. dollar, reinforcing the idea that Bitcoin remains the dominant asset in the crypto market," Paveliev said. "Without aggressive ecosystem growth efforts, Ethereum risks stagnation while competitors continue capturing market share."