Ethereum Traders Increasing Short Positions Amid Uncertain Market Conditions

In the realm of cryptocurrency trading, Ethereum (ETH) is currently experiencing a surge in short positions, raising concerns and speculations about its immediate financial prospects.

While Bitcoin (BTC) has been on a recent upward trajectory, Ethereum, the second-largest cryptocurrency by market cap, has struggled to gain significant momentum. Despite reaching over $4,000 in March, Ethereum failed to establish a new all-time high, a contrast to Bitcoin’s impressive surge during the same period.

Over the past two weeks, Ethereum has witnessed a nearly 10% decline, with the downward trend persisting in the last 24 hours, recording a 2.2% drop.

This bearish sentiment is evident in the actions of Ethereum traders, who have been increasingly bolstering their short positions, particularly following a significant move by Grayscale Investments.

Grayscale’s recent decision to withdraw its application for an Ethereum futures exchange-traded fund (ETF) has had a notable impact on trader sentiment. This strategic move, occurring just three weeks before the anticipated verdict from the U.S. Securities and Exchange Commission (SEC), has spurred a rise in short positions on Ethereum.

Traders are now heavily betting on further declines, with approximately $358 million in short positions poised for liquidation if prices rise by a mere 4%. Conversely, a 4% drop would only eliminate $237 million in long positions.

Source: Coinglass

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

As the decision date of May 23 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.

Beyond regulatory concerns, Ethereum faces challenges related to its overall usage and a lack of speculative interest, particularly from short-term holders.

Noted crypto on-chain analyst James Check has highlighted Ethereum’s low usage, indicating that its burn mechanism struggles to keep pace with issuance to validators. This sentiment is echoed by Glassnode, which underscores Ethereum’s underperformance relative to Bitcoin due to a lag in speculative interest from short-term holders.

From a technical perspective, Ethereum’s price is anticipated to continue its downward trajectory until it reaches a swing low liquidity near $2,800. This projection is driven by recent movements in Ethereum’s price, touching a breaker block, with the next target being to hit the major swing low on the 4-hour chart.