TLDR:

Ethereum futures net shorts hit a record -13,291 contracts on CME in early July 2025.
Funds earn 13% annually by shorting futures and staking ETH in delta-neutral trades.
Ethereum open interest jumped $15.9B from $2.2K to $3K, signaling peak leverage.
A sharp ETH move could trigger short squeeze or rapid deleveraging across markets.

Leveraged traders are stacking short positions on Ethereum (ETH) at a record pace, signaling a bold market strategy rather than simple bearish sentiment. 

Recent data from the Commodity Futures Trading Commission (CFTC) shows that institutional traders are holding their largest net short position ever in ETH futures. The move, however, appears more calculated than reactive, tied closely to a delta-neutral basis trade that blends futures, spot holdings, and staking rewards. 

This trend has caught market watchers’ attention as Ethereum’s price climbs while leveraged shorts pile up. The setup could either trigger sharp downside volatility or force an aggressive short squeeze if spot prices rally.

Record Short Positions Unfold on CME Futures

According to a chart shared by Zerohedge, leveraged short positions in ETH futures have reached -13,291 contracts as of early July 2025. 

This marks the most extreme net short ever recorded on the CME for Ethereum. The red bars, representing net short totals, have deepened steadily since April, with a vertical spike downwards from mid-2025. Historical data shows that short positioning remained fairly balanced until late 2023, before tipping heavily bearish through 2024 and into 2025.

Ether leveraged shorts going all-in: biggest short on record pic.twitter.com/PYuDvJdMhW

— zerohedge (@zerohedge) July 13, 2025

These positions reflect institutional behavior in cash-settled futures, which are often used by hedge funds and proprietary trading firms. While the surface shows heavy shorting, the intent is more complex, involving arbitrage between derivatives and spot holdings.

Basis Trade Drives Ethereum Short Build-Up

A tweet from @fejau_inc explains the underlying strategy: funds are engaging in a basis trade that nets around 13% annually. 

By shorting Ethereum futures on the CME, traders lock in a 9.5% annualized premium. They then purchase ETH on the spot market and stake it for an additional 3.5% yield. This structure creates a delta-neutral position, neutral to price direction, but profitable due to the funding spread and staking rewards.

This explains why the bulk of short positioning is in ETH rather than Bitcoin. Ethereum offers a staking yield, unlike BTC, which strengthens the yield side of the arbitrage. Hence, this strategy allows funds to benefit from price inefficiencies without exposing themselves to major directional risk.

Reason for the huge ETH shorts is basis trade. Funds can capture an annualized basis of 9.5% by shorting the CME futures and buying ETH spot with a staking yield of 3.5% (this why its mostly ETH not BTC) for a delta neutral 13%.

Thank you for your attention to this matter! pic.twitter.com/xsINDQwDvm

— fejau (@fejau_inc) July 13, 2025

BloFin Academy also noted that Ethereum’s open interest in the Delta 1 market has grown more sharply than in previous cycles. 

From $2.2k to $3k in price, the open interest rose by $15.9 billion, a much steeper rise compared to 2021’s $6 billion surge during a similar price rally. This indicates that leverage across ETH products is at its highest since 2020, which could fuel both upside swings and downside volatility.

Outlook Hinges on Ethereum Price Action and Liquidations

Despite the sharp increase in short positions, this setup does not necessarily predict price declines. 

If ETH maintains upward momentum, it could force short positions to unwind rapidly, causing a short squeeze. However, if ETH faces downward pressure, the existing positioning could amplify volatility.

Traders are now watching spot market flows, ETF data, and volatility indexes to anticipate the next move. While sentiment appears aggressively bearish on futures, the underlying strategy shows a calculated, yield-focused approach that could unravel quickly if the market moves against it.

 

The post Massive Ethereum Shorts Are a Feature, Not a Flaw: Here’s the Real Reason appeared first on Blockonomi.

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Filed under: Bitcoin - @ July 14, 2025 12:27 pm