Short seller Culper Research has disclosed a bearish position on Ethereum and ETH-linked securities, including treasury firm BitMine, arguing that the network’s December 2025 Fusaka upgrade has “impaired ETH tokenomics” by flooding the network with excess blockspace and driving transaction fees down approximately 90 percent.
The firm’s March 5, 2026 report warns that declining validator yields could trigger a negative feedback loop reducing staking demand and network security, while highlighting that BitMine’s 4.4 million ETH holdings are estimated to be sitting on roughly $7.4 billion in unrealized losses.
Core Short Thesis: Fusaka Upgrade and Tokenomics Deterioration
Fee Collapse and Validator Impact
Culper Research’s bearish case centers on the December 2025 Fusaka upgrade, which increased Ethereum’s base throughput by 33 percent by raising the gas limit from 45 million to 60 million per block. According to the firm’s analysis, this expansion of blockspace has collapsed transaction fee revenues by an estimated 90 percent since the upgrade.
Because validators earn a portion of their income from transaction fees, the fee collapse has reduced staking yields. Culper argues this dynamic could create a “death spiral” where declining validator yields reduce staking demand, potentially undermining network security and further depressing ETH’s value.
Address Poisoning and Distorted Metrics
The report pushes back on bullish claims citing rising transaction counts and active addresses as evidence of stronger network fundamentals. Culper contends these metrics are misleading, arguing that a significant share of the activity surge stems from address poisoning attacks—a scam tactic where attackers send small transactions to trick users into copying malicious wallet addresses.
“By Lee’s own logic, if utility is NOT going up, then ETH is in a death spiral,” the report states, referring to BitMine chairman Tom Lee’s bullish commentary. “This is exactly what we believe is happening.”
BitMine Exposure and Unrealized Losses
Treasury Position
The short thesis extends to BitMine, one of the largest corporate buyers of ether. Since July 2025, the company has accumulated approximately 4.4 million ETH as part of its treasury strategy, representing more than 3.7 percent of Ethereum’s circulating supply. BitMine has staked over 67 percent of its Ethereum holdings, valued at approximately $6.09 billion.
Financial Impact
With ether prices down significantly from recent highs, Culper estimates BitMine’s holdings are approximately 45 percent underwater, translating to roughly $7.4 billion in unrealized losses. Other estimates have placed the paper loss as high as $8.4 billion during periods when ETH traded below $1,900.
Despite these losses, BitMine shares continue to trade above their net asset value threshold, with institutional investors including BlackRock, Morgan Stanley, Goldman Sachs, and Vanguard increasing their holdings of BitMine shares in the fourth quarter of 2025.
Vitalik Buterin Sales
The Culper report highlights that Ethereum co-founder Vitalik Buterin has sold nearly 20,000 ETH this year, worth approximately $40 million at current prices. Onchain tracking shows Buterin has cumulatively sold 16,420 ETH, exceeding his originally stated plan to sell 16,384 ETH to fund new initiatives.
Buterin previously stated that Ethereum is “entering a period of mild austerity” over the next five years to achieve its goals, with proceeds from token sales directed toward supporting ecosystem development.
“Vitalik is selling, while bulls like Tom Lee are clueless as to ETH’s new reality,” the Culper report states. “We’re with Vitalik.”
Market Response and Divergent Views
Price Action and Open Interest
Following the short seller disclosure, BMNR shares came under pressure, dropping approximately 4.9 percent in early trading as market sentiment reacted to the bearish report. Ethereum was trading near $2,161, down approximately 1 percent on the day and approximately 3.4 percent over the past month.
Bullish Counterarguments
Despite Culper’s bearish thesis, several indicators suggest continued institutional confidence. Ethereum led all blockchains in 2025 by net inflows, attracting approximately $4.2 billion. The network’s total value locked and active addresses show sustained growth, with active addresses exceeding 1 million in January 2026—double the level from the previous year.
Tom Lee has cited “strengthened product-market fit” for Ethereum based on Wall Street’s tokenization push and artificial intelligence tools using the blockchain as key catalysts for growth. He argues that “Ethereum’s neutrality, combined with 100 percent uptime and reliability, positions it to capture significant market share.”
Technical Context: Fusaka and Upcoming Upgrades
The Fusaka upgrade implemented EIP-7594, preparing the ground for PeerDAS, which allows validators to check small fragments instead of entire BLOB objects, reducing node load and improving data availability. Subsequent parameter increases raised the per-block BLOB limit to 21 in January 2026, further expanding capacity.
Ethereum developers are now preparing for the Glamsterdam upgrade, tentatively scheduled for the first half of 2026, which would implement enshrined proposer-builder separation through EIP-7732 and introduce block-level access lists and a revised gas model.
FAQ: Culper Research Ethereum Short
Q: What is the core argument of Culper Research’s short thesis on Ethereum?
A: Culper argues that the December 2025 Fusaka upgrade flooded the network with excess blockspace, causing transaction fees to drop approximately 90 percent. This fee collapse has reduced validator staking yields, potentially triggering a negative feedback loop where weaker returns curb staking demand and erode network security. The firm also contends that rising transaction metrics are distorted by address poisoning attacks rather than reflecting genuine utility growth.
Q: How much unrealized loss is BitMine facing on its Ethereum holdings?
A: BitMine holds approximately 4.4 million ETH accumulated since July 2025. With ether prices down significantly from recent highs, these holdings are estimated to be 45 percent underwater, representing roughly $7.4 billion in unrealized losses. Other estimates have placed the paper loss as high as $8.4 billion during periods of heightened price pressure.
Q: Has Vitalik Buterin been selling ETH, and why?
A: Yes, onchain data shows Ethereum co-founder Vitalik Buterin has sold nearly 20,000 ETH in 2026, exceeding his originally stated plan to sell 16,384 ETH. Buterin has stated that proceeds from token sales fund ecosystem initiatives, noting that Ethereum is “entering a period of mild austerity” over the next five years to achieve its development goals.
Q: What counterarguments exist to Culper’s bearish thesis?
A: Bullish analysts point to sustained growth in total value locked and active addresses, with Ethereum leading all blockchains in 2025 with approximately $4.2 billion in net inflows. Institutional confidence remains strong, with major financial firms increasing BitMine holdings, and proponents argue that upcoming upgrades like Glamsterdam will enhance decentralization and efficiency. The divergence between fee collapse and network activity creates opposing interpretations of Ethereum’s fundamental trajectory.
