Key Takeaways

• Culper Research said it has taken a short position in Ethereum.

• Tom Lee’s bullish thesis challenged.

• 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:

• Wallet growth inflated by dusting attacks

• Transaction growth driven by dusting activity

• Gas limit increase led to a sharp fee decline

• Validator revenues falling

• Growing competition from Solana

• Vitalik Buterin selling ETH

• “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.