Short-selling firm Culper Research says it has taken a bearish position against Ethereum’s original token and related companies, arguing that the blockchain’s economic model is deteriorating after the latest network changes.
Conclusion
- Culper Research revealed short positions against Ether and ETH-related stocks, including BitMine.
- The company believes that Ethereum’s fee income has declined, weakening the network’s economic incentives.
- Culper claims that some metrics of network activity can be inflated by spam transactions, such as address poisoning and dust.
Short seller Culper targets Ethereum and BitMine in bullish report
In a report published on March 5, Culper disclosed that it is shorting Ethereum (ETH) as well as equity-related assets, including BitMine Immersion Technologies, a company that has built a large treasury position in the cryptocurrency.
A recent Ethereum upgrade designed to increase block capacity and reduce transaction costs has had an unintended consequence: a sharp drop in fee revenue that supports the network’s validator incentives, the report confirms.
Culper said Ethereum’s fee generation has declined in recent months, undermining reports that the network’s tokenism is strengthening over time.
The report states that Ethereum’s fee income has declined, along with the economic engine that once underpinned ETH’s valuation.
According to the company, the reduction in fees will reduce rate yield for validators and potentially weaken the long-term incentive to secure the network. Culper described the dynamic as a potential “death spiral” in which economic rewards stem the decline in participation while further weakening network security and investor confidence.
The report also singles out BitMine, which has amassed millions of dollars in ether as part of a corporate treasury strategy. Culper argues that the company’s valuation is heavily dependent on the price of ETH and could face significant downside if the cryptocurrency continues to struggle.
Culper’s report also highlights the chain’s recent transactions from Buterin-related wallets, arguing that the Ethereum co-founder has sold tens of thousands of ETH this year, which the company says is hampering the dominant narrative around the asset.
“Vitalik is selling while bulls like Tom Lee are unaware of the new reality of ETH,” the report said. “We are with Vitalik.”
Culper also dismissed the bullish interpretation of growing Ethereum transactions and address activity, arguing that some of the growth may stem from chain spam activity, such as poisoning or war operations, rather than organic user growth.
The short thesis comes at a time of volatility for crypto markets, with Ether and other major digital assets facing new challenges to their long-term economic models as scaling improvements and adoption of Layer 2 transform the blockchain ecosystem.
