Ethereum (ETH) is on the brink of a dramatic supply shock as leveraged short positions skyrocket to unprecedented levels, reaching historic highs and replacing liquid plummets.
Is this bullish for ETH, or will another “Black Thursday” event be created?
ETH supply shock gains momentum
The chart posted by ZeroHedge on X highlights the Ethereum supply shock in leveraged short positions reaching record short positions in total OTC and cash contracts. This is the most sharp decline since early 2025, informing the activity of offensive hedge funds.
Ether utilized the largest shorts on record. Source: ZeroHedge
Fejau, a Crypto expert, says this is driven by basic trade strategies, not bearish sentiment. Hedge funds will leverage differences in CME ETH futures and spot market prices to ensure consistent profits within Contango.
“The reason for the huge ETH shorts is base trading. Funds can earn an annual base of 9.5% by shortening CME futures and buying ETH spots with 3.5% staking yields at 13% delta neutral (why this is hardly eth),” Fejau explained.
The ETH supply shock is further strengthened by a record-high growth. According to Dune Analytics, more than 29.03% of total supply is locked, with around 121 million ETH circulating.
ETH staking ratio. Source: Dune
On-chain data also shows that ETH has recently left the exchange and is consistent with the current price of reverting to $3,000. This is due to the accumulation strategies of large companies like Whale and Sharplink.
The decline in liquidity also contributes to upward pressure on prices if demand exceeds supply. Last Friday, 140,120 ETHs, about $393 million, were withdrawn from the crypto exchange.
“Over 140,000 ETHs worth around $393 million have flowed out of the exchange, marking the largest single-day withdrawal in over a month,” Sentora said.
X’s Merlijntrader is the ETH forecast to hit $10,000 in this cycle, driven by potential short apertures and staking dynamics. ETF’s staking approval is expected by the end of the year and will bolster the story of the ETH supply shock.
Still, the risk is greater. As seen in the 2020s “Black Tunday,” basic transactions are advantageous, but vulnerable to sudden volatility. If Ethereum supply shocks cannot drive prices surges, funds can face losses and shake up market confidence.
ETH Price Action. Source: Beincrypto
ETH has broken past the $3,000 mark at the time of this writing. However, current prices are 38% below the all-time high that reached November 2021.
