CME Net Short Exposure Reaches ATH: Institutions Bearish on Ethereum

Ethereum is under selling pressure and has reduced some of its gains. While the cryptocurrency has been recovering from its lows of $1,000, it is now facing challenges in lower timeframes.

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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.

Ethereum ETH ETHUSD
On the 4-hour chart, ETH tends to the upside. Source: Tradingview ETHUSD

Binance Coin and Ethereum were the top-performing crypto assets with a market capitalization of over $10 billion. Their gains were able to pull back Bitcoin’s dominance which was close to reclaiming 50% of the sector’s total market cap.

While Bitcoin was the second most popular crypto, the other one decoupled with it. ETH, however, moved up. A sign of possible downside is when Bitcoin trails Ethereum. The crypto market saw downside price action in 2021 when Ethereum was able to move on its own.

Arcane Research reports that Ethereum moved independently on the spot market and the futures markets saw interest activity. The Chicago Mercantile Exchange (CME) ETH futures contracts have been trading at a discount when compared to ETH’s spot price.

This divergence could indicate that Ethereum may suffer future losses. The ETH futures contract is trending downwards since June 2022, as shown below. There has also been an increase in open interests.

Since the introduction of the investment product, this is the first occasion that the spot price has been different. Arcane Research outlined the reasons why this might be bad news to the second cryptocurrency by market capital:

Also, we note that CME’s Ether-denominated open rate of interest climbed to its highest point since April 1, while registering a slight drop 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

Do The Ethereum Shorts Have a Justification?

Arcane Research claims that this is the first instance of institutions being so short on Ethereum. They have positions worth almost $40 Million on CME Trading Platform with slight decreases in recent seven days.

Ethereum currently is in the process of moving from a Proof-of-Work to a Proof-of-Stake consensus algorithm. The ETH core developers recently announced that a component which will facilitate this upgrade was delayed.

Called the “Ethereum Difficulty Bomb” is the mechanism that will enable people to mine ETH. Although the ETH core developers claim that this won’t have any impact on migration, the market might have a different view.

Gary Gensler, Chairman of the U.S. Securities and Exchange Commission was also quoted as saying that he would only accept Bitcoin as a commodity. Although he declined to talk about any other cryptos, Gensler claimed that most of these cryptocurrencies fit the criteria for a security.

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The decentralized finance sector (DeFi) as well as non-fungible tokens and others could be affected by Ethereum being classified as security. They may have to adhere to new regulations. It remains to be seen whether these institutions will make a profit following a major crash in the cryptocurrency market.

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