Ethereum Short Interest Skyrockets by 500% Since November 2024

Ethereum’s short interest has surged by 500% since November 2024, sparking concerns about a potential short squeeze that could impact the widening performance gap with Bitcoin. In the past week alone, short interest in Ethereum has increased by 40%, with Wall Street hedge funds holding the largest short position in the cryptocurrency’s history.

Regulatory Support and Market Sentiment

Despite the regulatory uncertainty surrounding Ethereum in the past, the new regulatory environment under the Trump administration has alleviated concerns about the cryptocurrency being classified as a security. In fact, Eric Trump recently expressed his support for Ethereum, stating that “it’s a great time to add ETH.” However, this shift in regulatory tone has not deterred hedge funds from increasing their short positions.

Market Volatility and Inflows

The analysts at The Kobeissi Letter point to a particularly volatile period around February 2, when Ethereum dropped by 37% in just 60 hours due to trade war headlines. Despite this, the cryptocurrency saw significant inflows during December 2024, with over $2 billion in new funds, including a record-breaking weekly inflow of $854 million.

Additionally, Ethereum’s trading volume has experienced significant spikes, particularly on January 21 (Inauguration Day) and during the February 3 crash. However, despite these inflows, Ethereum‘s price has struggled to recover, remaining about 45% below its all-time high (ATH) set in November 2021.

What Do Hedge Funds Know?

The Kobeissi Letter analysts speculate on possible explanations for the extreme short positioning in Ethereum‘s market, including:

  • Market manipulation
  • Routine crypto hedging strategies
  • A bearish outlook on Ethereum‘s future

However, they note that this is strange, given the Trump Administration’s favorable stance on Ethereum.

Implications for the Market

The extreme positioning in Ethereum‘s market is likely to lead to more significant price swings, similar to the one seen on February 3. Furthermore, a short squeeze could help close the performance gap between Bitcoin and Ethereum. Since the beginning of 2024, Bitcoin has outperformed Ethereum by about 12 times, with Ethereum‘s market cap shrinking in comparison to Bitcoin, which is now six times larger than Ethereum.

For more news and analysis on the cryptocurrency market, visit Global Crypto News.

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