The pressure Ethereum faces after the Fusaka upgrade extends beyond just the price; it extends to fundamental questions about its long-term economic model. On March 5th, short-selling research firm Culper Research publicly disclosed its short positions in ETH and BitMine stock (ticker symbol BMNR), concluding its report bluntly: "We are bearish, and we have data to support it."
Culper's core argument centers on the Fusaka upgrade that launched on the mainnet last December. While the upgrade was intended to expand Ethereum's processing capacity, it unexpectedly caused a supply of transaction fees to exceed demand, resulting in a drop of approximately 90%. This had a direct and far-reaching impact on the validator ecosystem, which relies on fee revenue to operate.
The operating logic of the "death spiral": the problem lies in the incentive structure.
The key to understanding Ethereum's "death spiral" lies in its staking incentive mechanism. Validators' rewards consist of two parts—a fixed block reward and a floating share of transaction fees. Once transaction fees shrink significantly, the overall reward falls to a level that makes it difficult to attract new stakers and may even cause existing validators to withdraw.
Culper is concerned about the chain reaction that will occur once this negative cycle starts: declining staking ratios → fewer network nodes → shrinking security margins. In other words, the Fusaka upgrade brings "ample capacity" to Ethereum, but the cost may be "insufficient incentives."
It's worth noting that Culper, citing data from the on-chain tracking platform Lookonchain, points out that Ethereum co-founder Vitalik Buterin recently sold off approximately 20,000 ETH, equivalent to a current market value of about $40 million. Culper interprets this transaction as the founder's silent vote on the status quo: "Vitalik is selling, while bulls like Tom Lee are completely oblivious to the new reality of ETH. We're on Vitalik's side."
The Data Debate: What Do Active Addresses Really Represent?
BitMine Chairman Tom Lee has consistently maintained a bullish stance on Ethereum, recently citing increased transaction volume and a rise in active addresses as evidence of a recovering demand. Culper has issued a direct challenge to this.
The report argues that a significant portion of the recent surge in active Ethereum addresses stems from "address poisoning attacks"—a fraudulent method where attackers create numerous similar wallet addresses to confuse users, leaving a large number of meaningless interaction records on the blockchain. If this noise is removed, the so-called recovery in user activity becomes questionable.
BitMine, which currently holds approximately 4.4 million ETH, has an unrealized loss of approximately $7.4 billion, with its holdings down by nearly 45%.
Culper concludes with Tom Lee's own logic:
If the increase in on-chain activity cannot correspond to real application needs, then according to your measurement standards, ETH is in a death spiral—which is exactly our judgment.
