Ethereum

Why Ethereum traders are starting to bet big against ETH’s price

Ethereum faces increased shorting, sparking fears and speculation about ETH’s immediate financial future.

Published

6 months ago

May 8, 2024

Edited By: Saman Waris

Short positions increase following Grayscale’s decision to pull its Ethereum futures ETF application.
Market sentiment grows bearish with potential further declines.

Ethereum [ETH], the second-largest cryptocurrency by market cap, has recently shown a lack of significant upward momentum, contrasting with Bitcoin’s [BTC] recent surge.

Although Ethereum reached over $4,000 in March, it failed to set a new all-time high, unlike Bitcoin, which soared to a new peak in the same period.

In the last two weeks, Ethereum has seen nearly a 10% decline, and this downward trend has continued in the last 24 hours, with a 2.2% drop.

This bearish sentiment is reflected in the actions of Ethereum traders, who have been increasing their short positions, particularly after a significant development from Grayscale Investments.

Grayscale’s strategic withdrawal

Grayscale Investments recently withdrew its application for an Ethereum futures exchange-traded fund (ETF), a move that has significantly impacted trader sentiment.

This decision, made just three weeks before the U.S. Securities and Exchange Commission (SEC) was due to deliver its verdict, has led to an increase in short positions on Ethereum.

Traders are currently betting heavily on further declines, with $358 million in short positions poised for liquidation if prices rise by just 4%.

Conversely, a 4% drop would only eliminate $237 million in long positions.

Source: Coinglass

This withdrawal aligns with broader concerns about Ethereum’s regulatory status, particularly regarding its classification as a security and the fate of spot Ethereum ETFs.

As the decision date — the 23rd of May — approaches, analysts and market participants are growing increasingly skeptical about the approval of these ETFs.

According to Polymarket, over 90% of participants believe that the spot Ethereum ETF will be denied.

Source: Polymarket

How is Ethereum doing?

Beyond ETF concerns, Ethereum faces issues with its overall usage and a lack of speculative interest, especially from short-term holders.

James Check, a noted crypto on-chain analyst, pointed out that Ethereum’s usage is so low that its burn mechanism cannot keep up with issuance to validators.

This sentiment was echoed by Glassnode, which highlighted Ethereum’s underperformance relative to Bitcoin due to a lag in speculative interest from these short-term holders.