Ethereum short positions reach record high despite bullish sentiments

Ethereum’s leveraged short position on the Chicago Mercantile Exchange (CME) has reached an all-time high, indicating a strong bearish sentiment in the market. The record leveraged shorts happened as open interest in Ethereum futures on the CME reached a record high of over one million ETH.

Overall, open interest in Ethereum has increased over the past few weeks, setting a new record high of 6.91 million ETH ($27 billion) across all exchanges. While the heightened open interest indicates more speculative activity,  the short positions raise concerns about the ETH price.

Meanwhile, record shorts on CME suggest that institutional investors (hedge funds) are shorting ETH. This has led to speculation about whether this is a basis trade, i.e., investors hedging their bets on spot ETH by shorting its futures to take advantage of the price gaps.

Nevertheless, the leveraged short positions pose a risk of massive liquidation if the price of ETH should rise unexpectedly. This could also mean extra sell pressure for the asset, as the short squeeze could force more people to become cautious and reduce their exposure.

Onchain analysts bullish on ETH due to increased demand

Despite the record short positions, many analysts believe that ETH will rise in value soon and point to on-chain signals to prove their point. According to data from CryptoQuant, Ethereum will likely surpass $5,000, as its realized price upper band is at $5,200. The blockchain analytics platform notes that demand and supply are gaining the strength to play out this scenario.

It said:

“The realized price upper band, currently at $5.2k, matches the level seen during the 2021 bull run peak, signaling strong potential for further growth.”

Most of that growing demand comes from Ethereum exchange-traded funds (ETFs), which have seen more investor interest recently. The net inflow into ETFs now stands at $2.268 billion despite Grayscale ETHE seeing over $3.5 billion in outflows. BlackRock ETHA also has over $3 billion inflow after ten consecutive days of inflows. These continuous accumulations have driven the upward movement of ETH price.

With the accumulation increasing, many believe ETH will see massive gains in 2025. VanEck, in its predictions for next year, projected that ETH would reach $6,000, while BitWise was even more bullish, with a $7,000 prediction.

However, whether ETH will even finish 2024 above $4,000 still depends on its ability to maintain its price above $3,700. Technical analyst Ali Martinez has noted that $3,700 to $3,810 is one of ETH’s most important support levels, as three million wallets bought 4.6 million ETH at that level.

Ethereum is seeing a surge in scarcity 

Meanwhile, ETH supply, which is currently around 120 million, has also witnessed a turnaround in the burn rate. The network was at the center of a debate about L2s earlier in the year due to the high emissions of ETH on the L1 network and low transaction volume, which has caused the burn rate also to fall.

However, the average daily burn rate has increased to 2,700 ETH, compared to 80 ETH in August. This means that ETH supply has once again become deflationary due to heightened network activity, and many believe this will cause the ETH price to increase further.

Most of the network activities seem to be trending up for Ethereum. The network has seen an 8-month high in new wallets, with an average of over 130,000 new addresses created daily throughout December, a 2.63% increase this week. The last time it saw this much activity was in April.

Additionally, active addresses on Ethereum also increased by 4.24% this week, while addresses with zero balance fell by 4.06%.

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