Short Seller Culper Research Alleges Ethereum’s “Death Spiral,” Targets ETH and Bitmine

Ethereum is poised for a series of significant technical upgrades this year, a long-term bullish catalyst that has captured the market’s attention. However, the formidable short-selling firm Culper Research has dramatically challenged this narrative, asserting that Ethereum’s economic model is critically flawed and harbors a “death spiral” risk. The firm has issued a comprehensive report, revealing short positions in Ethereum (ETH) and Bitmine (BMNR), sparking an intense debate within the crypto community: Is Culper Research prescient, or profoundly mistaken?

In a short report published on Thursday, Culper Research disclosed its bearish bets against ETH and related assets like Bitmine. The firm contends that Ethereum’s “Fusaka upgrade” in December led to a significant oversupply of block space and a drastic reduction in transaction fees. As validator income is partially derived from these fees, staking yields have consequently shrunk, inflicting severe damage on Ethereum’s core economic model.

Culper Research warns that this dynamic could trigger a “vicious cycle”: persistently shrinking validator yields could dampen market participants’ willingness to stake, thereby compromising the security foundation of the Ethereum network.

The report further cites Lookonchain data, revealing that Ethereum co-founder Vitalik Buterin has sold nearly 20,000 ETH this year, an amount estimated at approximately $40 million at current market prices. The report starkly states:

“Even Vitalik is offloading his holdings, while die-hard bulls like Tom Lee remain blissfully unaware of the new reality facing Ethereum. This time, we choose to stand with Vitalik.”

Earlier, Tom Lee, Chairman of Bitmine—an Ethereum reserve company—had emphasized the continuous rise in Ethereum transaction counts and active addresses as a symbol of robust fundamentals. However, Culper Research refutes this, arguing that these metrics are highly misleading, with a significant portion of the so-called “activity surge” actually stemming from “address poisoning attacks.”

According to Culper Research’s estimates, Ethereum transaction fees have plummeted by approximately 90% since the Fusaka upgrade. The report asserts:

“Following Tom Lee’s own logic, if Ethereum’s actual utility is not improving, then ETH has entered a ‘death spiral.’ We firmly believe this is the scenario currently unfolding.”

Beyond its critique of Ethereum’s economic model, the short report also unleashes fierce criticism against Bitmine, one of the world’s largest corporate buyers of Ethereum.

As part of its corporate asset reserve strategy, Bitmine has aggressively accumulated approximately 4.4 million ETH since July of last year. However, with the sharp market pullback from peak prices, 45% of Bitmine’s holdings are now underwater, resulting in staggering unrealized losses (paper losses) of $7.4 billion.