Key takeaways
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Culper Research said it took a short position in Ethereum.
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Tom Lee’s bullish thesis questioned.
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Ethereum community reaction.
A research firm known for its activist briefs has taken aim at Ethereum, arguing that the world’s second-largest cryptocurrency is entering a “death spiral” due to flawed tokenomics and declining network fundamentals.
The claims have sparked a backlash from members of the Ethereum community, including co-founder Vitalik Buterin’s father.
Culper Research said it had established a short position in Ethereum and posted a thread on X outlining why it believes the cryptocurrency could fall further.
The company’s reasoning included:
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Wallet growth inflated by dust attacks
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Transaction growth driven by dust removal activity
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The increase in the gasoline limit caused a sharp drop in rates
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Validators’ income falls
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Growing competition from Solana
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Vitalik Buterin sells ETH
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“Broken” tokenomics
Culper Research said its analysis of Ethereum on-chain data from January 2025 to 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 dumping” attacks rather than genuine user adoption.
According to Culper, about 95% of the growth in new wallets since the Fusaka update can be attributed to newly created dust wallets.
The group also stated that such activity accounts for more than half of Ethereum transaction growth and now accounts for approximately 22.5% of all ETH transactions.
Culper further noted the recent increase in Ethereum’s gas cap to between 45 million and 60 million, introduced to expand Layer 1 capacity after the Fusaka upgrade.
While Ethereum co-founder Vitalik Buterin and the protocol’s researchers had estimated that transaction fees would drop by 10% to 30%, the company said gas fees instead fell by around 90%.
The lower rates, Culper said, have reduced validators’ income, stating that gas tips are now 40% to 50% lower.
The firm also suggested that Ethereum faces increasing competitive pressure from its blockchain rival Solana, citing faster developer growth and higher decentralized exchange trading volumes.
Culper also pointed to Buterin’s recent Ethereum sales, noting that he announced plans in January to sell 16,384 ETH to fund what he described as a “period of austerity” for the ETH Foundation.
The report claims that it has sold more than 19,000 ETH since then, which Culper says reflects declining confidence in Ethereum’s token economy.
