CME Net Short Exposure Reaches ATH: Institutions Bearish on Ethereum

Ethereum ETH ETHUSD
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Ethereum has seen some selling pressure today and has rolled back on a portion of its gains. The cryptocurrency was bouncing back from below the $1,000 levels but has found hurdles on lower timeframes.

Related Reading | Outflows Rock Bitcoin As Institutional Investors Pull The Plug, More Downside Coming?

At the time of writing, ETH’s price trades at $1,166 with a 3% loss in the last 24 hours and a 3% profit in the past 7 days.

ETH trends to the downside on the 4-hour chart. Source: ETHUSD Tradingview

Ethereum and Binance Coin were two of the best-performing assets in the crypto top 10 market cap. Their gains were able to pull back Bitcoin’s dominance which was close to reclaiming 50% of the sector’s total market cap.

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The second crypto in the top 10 decoupled from Bitcoin, while the latter stuck, ETH moved to the upside. When Bitcoin lags, and Ethereum leads, is often considered an indicator of potential downside. In 2021, when Ethereum moved on its own, the crypto market experienced downside price action.

According to Arcane Research, Ethereum not only moved on its own on the spot market, but the futures market saw some interest action. The Chicago Mercantile Exchange (CME) ETH futures contracts have been trading at a discount when compared to ETH’s spot price.

This divergence seems to hint at future losses for Ethereum. As seen below, the ETH futures contract has been trending to the downside since the beginning of June 2022 with an increase in open interest.

This is the first time since the launch of this investment product that there is a discrepancy with its spot price. Arcane Research noted the following on why this could be bad news for the second crypto by market cap:

We also note that the Ether-denominated open interest on CME climbed to the highest level since early April on Thursday while seeing a slight decline over the weekend. According to the most recent CFTC Commitments of Traders reports, assets managers are shorting Ether heavily (…).

Ethereum ETH ETHUSD
Source: Arcane Research

Are The Ethereum Shorts Justified?

The Arcane Research report claims this is the first-time institutions have been this short on Ethereum. These entities have positions of almost $40 million on the CME trading platform with a slight reduction in the past seven days.

Ethereum is currently in the process of migrating from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus algorithm. Recently, ETH core developers announced the delay of a component that will lead to this upgrade.

Called the “Ethereum Difficulty Bomb” is the mechanism that will enable people to mine ETH. The ETH core developers claimed this will have no impact on the migration, but the market could have a different perspective.

In addition, the U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler claimed that he is only willing to acknowledge Bitcoin as a commodity. He refused to speak about other cryptocurrencies but claimed the majority fits the description of a security.

Related Reading | Why Crypto Is “Likely To Dump” As It Lags The S&P 500, Expert Says

If Ethereum is classified as a security, the decentralized finance (DeFi) and non-fungible tokens (NFT) and other sectors could be impacted and forced to comply with new regulations. Remains to be seen if these institutions can profit after the crypto market has experienced a massive crash.



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