March 6 News, the short-selling firm Culper Research released a new report stating that they have taken a bearish stance on Ethereum (ETH) and companies highly related to it, warning that the network may fall into a so-called “death spiral.” The report believes that recent scaling upgrades on Ethereum have reduced transaction costs and increased block capacity, but also significantly weakened the network’s fee revenue, thereby undermining its token economic model.
Culper pointed out that over the past few months, on-chain fee income on Ethereum has declined sharply, and fees were once an important economic foundation supporting ETH valuation. As fees decrease, the rewards used to incentivize validators also decline, which could weaken the long-term motivation of stakers to maintain network security. The firm believes that if validator rewards continue to fall, participation may decrease, impacting network security and market confidence, creating a negative feedback loop.
The report also targets companies holding large amounts of ETH. Culper disclosed that it is shorting BitMine Immersion Technologies, a publicly traded company highly correlated with Ethereum. The company previously included Ethereum in its corporate financial assets and holds ETH worth several million dollars. Culper believes that if ETH prices continue to face pressure, the valuation of such companies could also decline.
Additionally, the report mentions recent on-chain activity related to Ethereum co-founder Vitalik Buterin. Culper states that Buterin has sold tens of thousands of ETH this year, which they see as an important signal weakening bullish sentiment in the market. The report also questions the interpretation of increased on-chain activity, suggesting that some of the transaction volume may come from address poisoning or wash trading, rather than genuine user growth.
At the time of this short-selling report’s release, the crypto market is experiencing intense volatility. As Ethereum’s scaling upgrades and Layer 2 ecosystems continue to expand, the market is reassessing Ethereum’s fee structure, staking rewards, and long-term value support. The debate over the sustainability of ETH’s economic model has once again become a focal point in the digital asset market.
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