Ethereum's Price Surge Driven by Short Covering, Not Bullish Sentiment

Ethereum's recent price surge above $2,600 is not driven by strong bullish sentiment but rather by a wave of short covering, according to Sui Chung, CEO of CF Benchmarks. The sharp upward movement in ETH price began after an early April sell-off, yet data indicates limited inflows into spot ether ETFs and a muted CME futures premium. This suggests that the move is not supported by new leveraged longs. As traders unwind their bearish positions, Ethereum's valuation receives a temporary boost, despite the lack of strong institutional demand or significant ETF accumulation.

The latest price rally in Ethereum is primarily fueled by the closing of bearish positions. Sui Chung emphasized that short covering, rather than fresh long positions, is driving ETH's recent strength. Traders are buying back futures contracts to exit short positions, pushing the ETH price higher. However, the CME's ether futures basis remains flat, between 6% and 10% annually, indicating a lack of strong long-side speculation. Under typical bullish conditions, a rising basis would suggest leveraged longs entering the market. Here, the flat premium supports the narrative of strategic repositioning rather than renewed investor enthusiasm.

The ETH price rally has surprised many due to the apparent lack of bullish fuel. Despite ETH rising nearly 90% since early April, the CME futures basis has not followed suit. Instead, it has hovered in a modest range. Institutional traders on CME are not aggressively pursuing leveraged longs. This detachment from bullish derivatives activity aligns with subdued inflows into U.S.-listed spot ether ETFs. These indicators suggest that market participants are reducing risk rather than entering with confidence, marking the current Ethereum price momentum as corrective, not speculative.

Despite Ethereum's strong performance, U.S.-listed spot ETH ETFs have not experienced significant investor inflows. Over the past four weeks, there have only been ten days of net-positive inflows, with a single day crossing the $100 million mark. This muted activity suggests that institutional demand remains limited. As a result, the ETH price rally lacks the strong foundational support typically provided by ETF investors. While short covering temporarily increases demand, long-term sustainability usually depends on consistent inflows and leveraged positions, both of which are currently missing from Ethereum's market structure.

The CME futures basis is often a key indicator of speculative demand. In Ethereum's case, that basis has stayed unusually flat even as the ETH price rally soared. This suggests that professional traders are not initiating new bullish trades in volume. Chung noted that in a traditional rally, one would expect the basis to climb as traders chase upward Ethereum price momentum with leverage. Instead, arbitrage strategies, such as selling CME futures while buying spot ETFs, are likely keeping the basis compressed. Still, the low inflows into spot products indicate this arbitrage activity is not widespread enough to explain the flat basis on its own.

Ethereum's short-term gains could fade unless new bullish positions enter the market. While short covering has driven the ETH price rally past $2,600, sustaining these levels will require real demand through ETF inflows or leveraged futures buying. Without a shift in investor behavior, especially from institutions, the upside may stall. That said, the recent rebound may still signal a sentiment shift. For now, the focus remains on whether Ethereum can turn this technical bounce into a fundamentally supported uptrend in the coming weeks.