Short interest in Ethereum has risen 500% since November 2024, raising questions about whether impending short pressure could fill the growing performance gap with Bitcoin, despite regulatory support.
Last week, short interest in Ethereum rose 40%, bringing the total increase to a staggering 500% since November 2024, according to The Kobeissi Letter, an industry-leading commentary on global capital markets.
For years, Ethereum has been under scrutiny, especially about the fear of being classified as a security by the Securities and Exchange Commission. However, with the new regulatory environment under the Trump administration, experts believe this is unlikely now. In fact, Eric Trump recently posted on X that this is the time to add ETH,” causing a brief rise in the price of Ethereum. Despite this shift in regulatory tone
Ethereum is now facing the highest short position it has ever seen.
Analysts at The Kobeissi Letter point to a particularly volatile period around February 2, when Ethereum fell 37% in just 60 hours on trade war headlines. They also highlight strong inflows into Ethereum during December 2024, despite reports that hedge funds were increasing their short positions. In just three weeks, Ethereum has seen more than $2 billion in new funds, including a weekly influx A record $854 million.
In addition, they observed significant spikes in Ethereum’s trading volume, especially on January 21 (Inauguration Day) and during the February 3 crash. Despite the high inflows, the price of Ethereum has struggled to recover, remaining about 45% below its November 2021 record high, even a week later.
Selling pressure mounts on Bitcoin and Ethereum
Pressure continues on the cryptocurrency market, with assets recording double-digit exits. Bitcoin (BTC) and Ethereum (ETH) outflows formed other assets, increasing selling pressure in the second week. Total outflows exceeded $2 billion as market capitalization fell to $3.19 trillion, down 3.8% today. Despite this downtrend, cryptocurrency users are optimistic about the rally after Slight volatility in hourly trading.
The past seven days have signaled a decline in sentiment after huge sales of crypto whales. Look on chain says large bitcoin and Ethereum holders have sold assets to minimize losses as the market correction worsens. Bitcoin’s flows to centralized exchanges and subsequent sales have sent its price below the $99,500 mark.
Due to outflows, this low price threatens its $90,000 support at the beginning of the year. Huge flows to exchanges highlight potential selling, increasing the chances of further corrections. This week saw huge sales of bitcoin, with most losing to avoid a vitriolic liquidation.
Data on the chain shows that most retail holders sold assets after a correction below $95,000, leaving institutional traders buying the decline. Huge sales from institutional holdings were also recorded, highlighting weak weekly demand for products. Bitcoin is priced at $97,586, down 3% in the past seven days the collapse in holdings highlighted a sharp decline in traders‘ settlements, which affected overall volumes.
Ethereum price collapses to $2,600
At the time of writing, the price of Ethereum has dropped to $2,620 as the bulls tried to maintain their strength. That’s a whopping 14% drop since last week and a 3% drop today. The Ethereum decline comes amid declining sentiment in the crypto and decentralized (DeFi) market. With the liquidation exceeding $500 million, ETH had a market capitalization of $319 billion.
Lower Ethereum transaction fees and increased supply effect
Daily transaction fees on the Ethereum network have fallen to their lowest level since September 2024, according to data from Token Terminal.
Ethereum made $731472 in daily fees on February 8, marking the first time in five months that daily revenue fell below $1 million. The network experienced a similar recession from August 17 to September 8, 2024, when it failed to cross the $1 million threshold in several days. The last time this happened was in November 2020
The network’s native cryptocurrency, Ether (ETH), has also disappointed investors over the past year, failing to reach new highs alongside Bitcoin despite the approval of spot exchanges (ETFs) in major markets such as the US and Hong Kong..
The global cryptocurrency industry has faced wider declines amid escalating trade tensions, but one of the main factors weighing on Ether’s performance is the increased supply. Since April 2024, the supply of Ethereum has been steadily increasing, reversing the downturn introduced by the merger in September 2022. Total supply of Ethereum has now exceeded pre-merger levels
The merger eliminated the mining-based version of Ethereum, which previously had a high inflation rate in supply. Ethereum also implemented London’s hard fork in August 2021, which introduced a mechanism that burns part of the transaction fees. When network activity is high, burnt ether can surpass newly released ether, making the asset deflationary.
Ethereum’s Tier 2 expansion strategy has succeeded in reducing congestion and higher fees on the main chain, but this has shifted activity away from the main blockchain. These Layer 2 networks still face compatibility issues, raising concerns about a fragmented Ethereum ecosystem.
