Could Ethereum be Primed For a Massive Short Squeeze?

Brief positions on ETH have elevated dramatically by about 40% in a single week and 500% since November, leading to document ranges.

“By no means in historical past have Wall Avenue hedge funds been so in need of Ethereum, and it’s not even shut,” exclaimed the Kobeissi Letter on Feb. 10.

The consequences of this “excessive positioning” have been seen earlier this month when crypto markets crashed, hitting Ethereum laborious. The asset dumped 37% in 60 hours as Trump’s commerce battle headlines emerged.

“It felt nearly just like the flash crash seen in shares in 2010, however with no headlines,” it added.

Ethereum Brief Squeeze

Regardless of all of the negativity and buildup of quick positions, Ethereum ETFs added $2 billion in new funds in December whereas attaining a document weekly influx of $854 million. Buying and selling quantity has been sturdy, with spikes after Inauguration Day and the February crash, Kobeissi famous.

Earlier considerations about SEC classifying ETH as a safety seem like diminishing. The Trump Administration appears supportive of ETH, and Eric Trump’s positive comment about ETH briefly affected costs final week.

Nonetheless, Ethereum continues to be buying and selling 46% down from its November 2021 all-time excessive, which begs the query, “Why are hedge funds so devoted to shorting Ethereum?”

What is occurring with Ethereum?

Brief positioning in Ethereum is now up +40% in ONE WEEK and +500% since November 2024.

By no means in historical past have Wall Avenue hedge funds been so in need of Ethereum, and it’s not even shut.

What do hedge funds know is coming?

(a thread) pic.twitter.com/knsyOhYyyt

— The Kobeissi Letter (@KobeissiLetter) February 9, 2025

There’s a sturdy risk of a brief squeeze because of the excessive stage of quick positioning, the massive hole between Bitcoin and Ethereum’s efficiency, and BTC being up roughly 12 occasions greater than ETH over the previous yr or so.

A brief squeeze happens when a closely shorted asset like ETH begins to rise in worth, forcing quick sellers to cowl their positions by shopping for again the asset to chop their losses.

This shopping for stress then pushes the asset even greater, forcing extra quick sellers to cowl, making a speedy upward spiral in worth. Given the reported 500% improve in ETH quick positions over the previous three months, a brief squeeze could possibly be significantly dramatic.

With so many quick positions, this might create large shopping for stress, driving the value up in a short time and probably closing a few of that hole with Bitcoin’s efficiency.

The impression could possibly be particularly vital as a result of institutional traders holding these massive quick positions sometimes use leverage, which suggests they could have to cowl their positions shortly if the market strikes in opposition to them, probably amplifying the squeeze impact.

Nonetheless, it needs to be famous that whereas quick squeezes could cause dramatic worth will increase, these are sometimes non permanent, and the value could settle again down after the squeeze performs out.

Finish of Altseason?

Again to the present scenario, ETH costs proceed to crumble because the asset has misplaced 17% over the previous fortnight.

ETH dipped to an intraday low of $2,540 earlier than a minor restoration to commerce at $2,630 on the time of writing. Nonetheless, merchants and analysts have noticed similarities in chart patterns, noting that February has been historically bullish for ETH.

Ethereum is mirroring 2020’s breakout construction.

Subsequent cease: $6K+ pic.twitter.com/MeAxfMOnIj

— Merlijn The Dealer (@MerlijnTrader) February 8, 2025

In the meantime, altcoins are taking the brunt of at this time’s market decline as BTC dominance will increase once more, approaching 62%.