Why funds short Ethereum as Culper Research targets ETH after Fusaka upgrade

Markets are debating whether to short Ethereum after a US research firm publicly attacked the network’s post-upgrade economics and recent selling by Vitalik Buterin.

Culper Research reveals bearish ether bet

On Thursday, Culper Research disclosed a short position in ether and ETH-linked securities, arguing that Ethereum’s latest design changes will pressure the token for an extended period. The firm said the December 2025 Fusaka upgrade and Vitalik Buterin‘s recent on-chain activity both indicate that “ETH is going lower.”

“NEW: We are short Ether ETH, and ETH-linked securities, incl. BMNR,” Culper wrote on X. However, it emphasized that the call is grounded in tokenomics, not just price action. “We think ETH tokenomics are impaired following the December 2025 Fusaka upgrade. Vitalik knows it and is selling, while ETH’s most ardent bull, Tom Lee, is throwing good money after bad.”

How Culper interprets Ethereum’s Fusaka upgrade

Culper’s central argument is that Fusaka’s L1 scaling overhaul has reshaped Ethereum’s fee and demand mechanics far more aggressively than core developers anticipated. The report points to a gas limit increase “45 to 60M” intended to scale the base layer and to internal estimates that “Vitalik and PTG” expected transaction fees to drop roughly 10% to 30%.

According to Culper, the realized outcome was far more extreme. “In reality, gas fees fell ~90%,” the firm wrote, claiming Ethereum’s leadership and validators “miscalculated L1 demand elasticity by 3-9x based on outdated math (pre-EIP-1559 and pre-L2s).” Moreover, the group suggests this error is structural rather than a short-term market aberration.

That fee compression matters because it flows directly into validator revenue and staking incentives. “Further, the gas-limit increase killed $ETH validators, who are now seeing 40-50% lower tips per gas,” Culper argued. The firm contends weaker yields discourage staking and “high-value activity,” which in turn undermines Ethereum’s long-running institutional adoption narrative. “The flywheel is now running in reverse.”

Challenging Tom Lee’s bullish thesis

The thread then positions Tom Lee and BMNR as the main high-profile bulls on ETH, before attempting to dismantle their post-Fusaka optimism. Culper says Lee has defended ether by arguing that “ETH is not in a death spiral because utility is going up.” According to the research firm, Lee cited spikes in active addresses and transaction volumes after the December 2025 upgrade as evidence of “strengthening fundamentals” and institutional demand.

Culper’s rebuttal is highly pointed and leans on Lee’s own framing. “By Lee’s own logic, if ETH activity does NOT reflect increased utility and strengthening fundamentals, then $ETH would be in a death spiral,” the post stated. “Our research says this is exactly what’s happening.” That said, the firm stresses that the dispute is less about raw activity counts and more about what is actually driving those metrics.

On-chain data and the rise of low-value activity

To explain the sudden activity surge, Culper points to its analysis of Ethereum on-chain data from January 2025 through February 2026. The research claims that much of the post-Fusaka growth did not come from organic usage, but from a wave of low-value address poisoning and wallet dusting made economical by cheaper blockspace.

“Post-Fusaka: 95% of growth in new wallets is explained by newly-created ‘dusting’ wallets,” Culper wrote. The firm adds that poisoning attacks have “more than 3x’ed,” that such activity explains “>50% of $ETH transaction growth,” and that it now makes up “22.5% of all ETH transactions.” However, critics might argue that even low-value traffic still reflects broader experimentation with the network.

Culper also said it tested the phenomenon directly. The team claims it created two new wallets, transferred funds between them, and was targeted by poisoning attacks “within 5 minutes.” It further asserts that realized poisoning losses are “already pacing >8x higher than pre-Fusaka,” presenting this as another hidden cost of the upgrade’s aggressive L1 scaling.

Vitalik Buterin’s ETH sales under the microscope

The short thesis then links these tokenomics concerns to Vitalik Buterin‘s recent sales, framing his moves as informed decision-making rather than routine treasury management. Culper suggests that Buterin’s activity reinforces the research view that ETH economics have worsened since December 2025.

“This is why, we think, Vitalik is selling ETH hand over fist,” the group wrote. “On January 30, Vitalik pre-announced he’d sell 16,384 ETH to fund the Foundation’s ‘austerity period.’ Since then, he’s sold over 19,300 ETH and counting.” Moreover, Culper concludes that “He knows what Tom Lee doesn’t: ETH tokenomics are broken.” For traders wondering how to execute a short Ethereum trade, this messaging clearly aims to signal insider alignment with the bearish case.

Competition from Solana and Ethereum’s own L2s

Culper closes its argument by reframing ether’s situation as a market share problem rather than a pure valuation dispute. The firm says Ethereum is losing ground both to Solana at the base layer and to its own L2 networks, which increasingly capture user activity and fee revenue. That comparison echoes earlier tech cycles where incumbents led one era, then ceded dominance to faster-moving challengers.

According to the research, the combination of cheaper L1 blockspace, lower validator yields and the migration of activity to alternative chains weakens ETH’s long-term investment profile. However, supporters counter that rollups and L2s were always part of the roadmap, and that near-term fee compression could pave the way for broader adoption.

At press time, ETH traded at $2,080, leaving both bulls and bears focused on whether post-Fusaka economics and Buterin’s sales will justify Culper’s high-conviction short.

In summary, Culper Research’s campaign combines concerns over the December 2025 Fusaka upgrade, rising low-value on-chain activity, sliding validator economics, and Vitalik Buterin’s recent sales to build a comprehensive bear case on ether.