Strong Fundamentals, Rising Shorts – Ethereum Short Squeeze Coming?

Analysts at investment bank Citi say Ethereum’s fundamentals are improving despite ETH’s disappointing performance since the start of 2025. 

A team of Citi analysts led by Alex Saunders highlighted an increase in the TVL (total value locked) on the Ethereum network, continuing inflows into Ethereum ETFs (exchange-traded funds) and growing search interest.

On February 4, Ethereum ETFs saw the third-highest daily net inflow since the first Ethereum ETFs launched in the United States.

The analysts noted that Ethereum inflows have seen positive ETF inflows since the U.S. presidential election on November, and also highlighted World Liberty Financial’s ETH holdings of over $200 million. World Liberty Financial is backed by the Trump family, and this could be a positive sign for the crypto regulatory environment in the United States.

According to the analysts, tracking the performance ETH and altcoins in relation to Bitcoin will be important moving forward:

“Relative ETH and altcoin performance may serve as a gauge for how optimistic the industry is regarding follow-through on regulatory clarity in the U.S.”

ETH has dropped 22.3% against the US dollar since January 1, which is especially troubling since Bitcoin gained 1.6% in the same time period. 

The Ethereum market is in an interesting position at the moment, as there has been a significant accumulation of Ethereum short positions on CME’s Ethereum futures contracts.

What is happening with Ethereum?

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.

What do hedge funds know is coming?

(a thread) pic.twitter.com/knsyOhYyyt

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

As a result, some users on social media are speculating we could see a short squeeze leading to a rapid appreciation of ETH.

Bros have built the largest ETH short position in history while ETH spot ETF inflows looks like this.

Squeeze material.$ETH pic.twitter.com/qXmsjoIbfA

— Inmortal (@inmortalcrypto) February 10, 2025

However, it’s important to keep in mind that a significant portion of these short positions could be a result of carry trades, and not traders making a bearish bet on ETH. 

In a carry trade, traders can turn a profit from the difference in pricing between spot Ethereum ETFs and Ethereum futures by purchasing shares in spot Ethereum ETFs while simultaneously entering a short position using Ethereum futures contracts.