Hedge Funds Increase Ether Futures Short Positions: A Combination of Carry Trades and Bearish Sentiment
Hedge funds have dramatically escalated their short positions in ether (ETH) futures on the Chicago Mercantile Exchange (CME), triggering speculation about the factors influencing this surge in activity. While many see this as an indication that sophisticated market players expect a decline in ether’s price, the reality appears to be a mix of carry trades and outright bearish positions.
Data from ZeroHedge and the Kobeissi Letter reveals that, as of the week ending February 4, hedge funds held a net short position of 11,341 contracts in CME ether futures, a notable 40% increase in just one week, and a staggering 500% surge since November. This significant rise in short interest has led many to question what’s driving this shift in strategy.
Thomas Erdösi, head of product at CF Benchmarks, emphasized that a large portion of the short interest can be attributed to carry trades, which involve profiting from discrepancies between futures and spot markets. In ether’s case, hedge funds are simultaneously shorting the CME futures while purchasing ether ETFs like BlackRock’s iShares Ethereum Trust ETF.
“Despite macroeconomic challenges, we have seen solid inflows into U.S.-listed ether ETFs, which likely correlates with the rise in short futures positions, indicating hedge funds are engaging in basis trades,” Erdösi said. He also noted that periods when Ethereum’s basis outpaces that of Bitcoin make carry trades on ether even more appealing.
While carry trades are a significant factor, some of the short positions are also outright bearish bets on ether, reflecting its recent struggle to perform as well as other top cryptocurrencies, such as Solana (SOL). Hedge funds may be using short futures positions as a way to hedge against broader risks in the altcoin market, including potential price drops.
“Not all short interest is tied to carry trades,” Erdösi added. “Some hedge funds are likely betting on a further decline in ether’s price given its recent underperformance against other programmable blockchains.”
Data from both CME and Deribit options markets reveals a strong bias toward put options, signaling that many investors are bracing for further downside risks in the short term. These options are generally used by traders who anticipate price declines, confirming that many are hedging against potential losses in ether.
However, longer-term options data shows a contrasting sentiment, with more call options being traded, which suggests some investors remain optimistic about ether’s long-term prospects. This mix of short-term bearishness and long-term optimism underlines the complex outlook for ether, with varying forces shaping its price trajectory in both the near and distant future.
