Ethereum, one of the largest and most influential cryptocurrencies in the world, has remained unusually quiet despite strong underlying fundamentals. Over the past several months, its price action has been subdued, leaving many investors puzzled. While the broader market has faced various ups and downs, Ethereum has stayed in a holding pattern. However, that narrative might be shifting, thanks to a critical but often overlooked development. A key source of market pressure—massive institutional short positions on Ethereum futures—has finally begun to unwind, and that change could alter the trajectory for ETH moving forward.

At the heart of the issue lies Ethereum’s futures market on the Chicago Mercantile Exchange (CME), a platform widely used by institutional investors. In late 2024, Ethereum futures on CME began trading at a significant premium to spot prices. This difference between futures and spot pricing, known as the basis, reached levels above 20%, creating a textbook opportunity for arbitrage. Institutional traders jumped in, using a strategy that involved buying spot ETH while simultaneously shorting futures contracts to lock in risk-free profits. It was not a bet against Ethereum’s future but rather a calculated move to take advantage of a temporary price gap.

However, this strategy created unintended consequences. The heavy shorting of futures, even though neutral in intent, generated downward pressure on ETH’s overall price. These arbitrage trades grew in size, and at their peak, the net short positions in Ethereum futures exceeded $600 million. This buildup created a structural drag on ETH, making it difficult for the asset to respond to positive signals from the broader crypto market or its own network developments.

Over the past two months, conditions have changed dramatically. The basis between futures and spot prices has collapsed to around 4% to 5%, much closer to what would be considered a normal level in healthy market conditions. This decline effectively closed the arbitrage window, prompting funds to start unwinding their positions. That meant covering shorts in the futures market and simultaneously reducing spot ETH holdings. While this cleanup weighed on Ethereum’s price during the early months of 2025, it has now largely run its course.

The fading of this structural pressure doesn’t mean Ethereum is about to explode in value, but it does signal a healthier market environment. With the artificial drag gone, ETH is now more capable of responding to true demand and macroeconomic signals. It also puts the focus back on Ethereum’s strong underlying fundamentals. On-chain data continues to show promising signs, including increased activity from large investors, better known as whales, who have been accumulating ETH despite the recent lack of price movement. Additionally, Ethereum still commands a dominant role in the decentralized finance (DeFi) space, holding over $190 billion in total value locked across various protocols.

Other key indicators, such as the MVRV Z-Score—a metric used to assess whether an asset is over or undervalued—suggest that Ethereum may currently be trading below its fair value. Network usage is also showing early signs of a rebound, potentially indicating a fresh accumulation phase is underway. These positive signals alone haven’t been enough to fuel a rally, but with the structural overhang removed, Ethereum is better positioned to benefit from upcoming catalysts.

For now, ETH’s next move will likely depend on external events. A policy shift by the U.S. Federal Reserve, increased flows into Ethereum-based ETFs, or greater adoption of Ethereum’s Layer 2 scaling solutions could all act as ignition points. The key difference today is that Ethereum no longer has to fight against hidden technical forces to move forward.

In summary, while Ethereum has yet to break out, the conditions holding it back have weakened. The recent cleanup in the futures market isn’t a bullish trigger on its own, but it does remove a significant obstacle. With solid fundamentals intact and structural pressure fading, Ethereum may finally be ready to react to the right catalyst—whenever it appears.