Ethereum (ETH) is stuck in consolidation, with the price oscillating between $2,700 and $2,600 in the last three days. Despite the range-bound movement, activity in the Ethereum derivatives market has spiked considerably, with short sellers increasing their positions.
Per Kobeissi’s Letter, the number of short positions on ETH has surged to a historic high. This rise shows that many traders are bearish and anticipating that Ethereum could plunge further. However, this scenario could flip bullish if a sudden surge in ETH price hits a liquidation level that forces short sellers to close their positions, leading to a short squeeze.
Short Sellers Increase Ethereum Bets
Per the analysis, short sellers began to increase their Ethereum positions on February 2, after the altcoin crashed by more than 30% in less than three days. ZyCrypto reported that this crash coincided with one of the biggest liquidation events in crypto history, where more than $2 billion was wiped out within 24 hours.
Despite the recent drop, short traders anticipate that Ethereum will drop further. In fact, since November last year, short positioning has increased by 500%.
One of the reasons why traders have become bearish on ETH is the generally negative outlook on the network. Besides the rising supply that has gone back to pre-merge levels, activity on the Ethereum network has also slumped, with decentralized finance (DeFi) Total Value Locked (TVL) dropping to November lows of $73 billion.
“Potential reasons range from market manipulation to harmless crypto hedges to bearish outlook on Ethereum itself. However, this is rather strange as the ***** administration and new regulators have favored ETH,” the report stated.
*****’s Bullish Bet on Ethereum
Despite the negative sentiment of the increasing short positions, the altcoin’s recognition by World Liberty Finance, a DeFi platform by the ***** family, could boost Ethereum’s long-term outlook.
At the same time, Eric ***** recently tweeted that now was “a great time to add ETH.” This could boost the general outlook around the altcoin.
Moreover, institutions seem to be betting big on Ethereum after recent weekly inflows of $420M into spot Ethereum exchange-traded funds per SoSoValue. This further highlights rising interest that could bode well for future price performance.
If these catalysts stir an Ethereum price rally and the price hits these liquidation zones, short sellers will be forced to close their positions by buying. The rising demand could push ETH past the $3,000 range.