Short seller targets ETH after fee collapse

TLDR

A short-selling firm has publicly taken a bearish position on Ethereum, arguing that a recent upgrade collapsed fees and weakened ETHs economics.

1. Culper Research says Ethereums December 2025 Fusaka upgrade expanded blockspace, slashed fees, and cut validator rewards, so it is shorting ETH and ETH-exposed firms like BitMine.
2. Lower fees can pressure staking yields, but they also improve user experience; on-chain data shows both bearish flows (more shorts, ETF outflows) and continued whale and ETF accumulation.
3. The key variables to watch are average fees and burn, staking yields and participation, and whether network activity and institutional flows stabilize or keep weakening.

Deep Dive

1. What The Short Seller Is Claiming

Short-selling shop Culper Research released a report stating it is betting against Ethereum (ETH) and ETH-heavy companies such as treasury firm BitMine.

The firm argues that Ethereums December 2025 Fusaka upgrade dramatically increased available blockspace, flooding capacity and causing transaction fees to drop sharply, which it frames as a fee collapse that undermines tokenomics. The report claims lower fees are already dragging down validator earnings and staking yields, and warns this could start a negative loop where fewer people stake, potentially weakening network security over time.

Culpers thesis is explicitly framed as a reason to be short ETH and ETH-exposed equity, not just as neutral analysis of protocol health, which adds an incentive to emphasize downside in its narrative.

2. Fee Collapse And ETH Tokenomics

On Ethereum, validator revenue combines newly issued ETH plus transaction fees, with part of the fees burned under EIP?1559, so sustained low fees do reduce both yield and burn.

If Fusaka meaningfully expanded blockspace, it could depress average fees when demand is flat, exactly the scenario Culper highlights in its report. This is directionally plausible for yields, but it is not automatically fatal for ETH: lower fees can support usage and layer?2 activity, and the base issuance is now structurally low after the Merge.

Other recent analysis notes that while hedge funds and other institutions have ramped up shorts on both ETH and BTC, whales and long-term addresses continue to accumulate ETH even after it fell below 2,000 dollars, suggesting two-sided positioning rather than consensus collapse on Ethereums value proposition.

3. What To Watch From Here

A few concrete metrics will show whether the fee collapse thesis is playing out in a damaging way:

1. Average transaction fees, total fees, and net ETH burned over coming months. A prolonged slump here supports the short thesis; a rebound would weaken it.
2. Staking yields and validator participation. Falling effective yields combined with rising validator exits would point to security or incentive stress.
3. Flows into and out of ETH vehicles, such as spot ETH ETFs and large accumulation addresses, which indicate whether traditional and crypto-native capital are aligning with the short or the long side.

Conclusion

A professional short seller is arguing that Ethereums post?Fusaka fee dynamics make ETH less attractive, especially for stakers, and is positioning accordingly. At the same time, there are still signs of long-term accumulation and ongoing institutional interest. How fees, burn, staking participation, and capital flows evolve from here will determine whether this fee collapse becomes a lasting problem for ETH or a temporary stress in a still-dominant smart contract ecosystem.