Key Takeaways
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Culper Research said it has taken a short position in Ethereum.
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Tom Lee’s bullish thesis challenged.
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Backlash from the Ethereum community.
A research firm known for activist short reports has taken aim at Ethereum, arguing the world’s second-largest cryptocurrency is entering a “death spiral” due to flawed tokenomics and declining network fundamentals.
The claims have triggered backlash from members of the Ethereum community, including the father of co-founder Vitalik Buterin.
Culper Research said it had established a short position in Ethereum and published a thread on X outlining why it believes the crypto could fall further.
The firm’s reasoning included:
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Wallet growth inflated by dusting attacks
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Transaction growth driven by dusting activity
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Gas limit increase led to a sharp fee decline
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Validator revenues falling
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Growing competition from Solana
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Vitalik Buterin selling ETH
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“Broken” tokenomics
Culper Research said its analysis of Ethereum’s on-chain data from January 2025 through February 2026 suggests that recent growth metrics cited by bullish analysts may be misleading.
The firm argued that much of the apparent expansion in Ethereum wallet activity is driven by “address poisoning” or “wallet dusting” attacks rather than genuine user adoption.
According to Culper, about 95% of growth in new wallets since the Fusaka upgrade can be attributed to newly created dusting wallets.
The group also claimed that such activity accounts for more than half of Ethereum’s transaction growth and now represents roughly 22.5% of all ETH transactions.
Culper further pointed to Ethereum’s recent gas limit increase to between 45 million and 60 million, introduced to expand layer-1 capacity after the Fusaka upgrade.
While Ethereum co-founder Vitalik Buterin and protocol researchers had estimated transaction fees would fall 10% to 30%, the firm said gas fees have instead dropped around 90%.
Lower fees, Culper said, have reduced validator revenue, claiming tips per gas are now 40% to 50% lower.
The firm also suggested Ethereum faces growing competitive pressure from rival blockchain Solana, citing faster developer growth and higher decentralized exchange trading volumes.
Culper additionally pointed to recent Ethereum sales by Buterin, noting he announced in January plans to sell 16,384 ETH to fund what he described as an “austerity period” for the ETH Foundation.
The report claims he has sold more than 19,000 ETH since then, which Culper argued reflects declining confidence in Ethereum’s token economics.
Culper Research also directed much of its criticism at Wall Street analyst Tom Lee, whose bullish outlook on Ethereum has attracted significant attention in recent months.
Lee, chairman of crypto treasury firm Bitmine, has repeatedly argued that Ethereum is entering a “supercycle” with price targets ranging from $10,000 in the near term to as much as $60,000 over the longer term.
In its thread, Culper said the growth metrics Lee has cited as evidence of institutional adoption are misleading.
Culper also suggested Lee’s bullish thesis depends on network demand and fee dynamics that it believes are weakening.
The report quickly drew criticism from members of the Ethereum ecosystem.
Dmitriy Buterin, father of Ethereum co-founder Vitalik Buterin, dismissed the claims in a post on X, taking particular issue with Culper’s suggestion that Vitalik’s token sales signaled a lack of confidence in the network.
“You can stop reading after this bullshit sentence ‘Vitalik knows it and is selling,’” he wrote.
Critics of the short thesis also argued that Ethereum’s development roadmap and continued roll-out of layer-2 scaling solutions contradict the firm’s conclusions.
Ethereum’s price has struggled in recent weeks but technical indicators suggest it could see a near-term recovery.
According to analysis by CCN analyst Abiodun Oladokun, persistent selling pressure dominated the past month, leaving many traders transacting at a loss.
However, Oladokun said the Parabolic SAR indicator on the daily chart now shows dots below the price, a technical signal that the short-term trend may be shifting in favor of buyers.
If bullish momentum continues, Ethereum could break above a key resistance level around $2,142, potentially pushing the price toward $2,381, he said.
However, if Ethereum falls below the indicator’s support level near $1,868, the price could slide further to around $1,754, according to the analysis.
Ethereum is down around 8.5% over the past month and was trading around $2,044 at the time of writing.
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