Short-selling firm Culper releases bearish report on Ethereum: Fusaka upgrade disrupts ETH token economics

New York-based aggressive short-selling firm Culper Research recently released a short report on Ethereum (ETH), stating that the Fusaka upgrade in December 2025 has caused a structural disruption to ETH’s token economy and warning that Ethereum may be entering a long-term cycle of value decline. The firm explicitly stated in the report: “We are shorting ETH.”

Who is Culper Research?

Culper Research was founded in 2019 by investor Christian Lamarco and is headquartered in New York, USA. The firm specializes in publishing investigative short reports on publicly traded companies or popular assets, named after the Culper Spy Ring, an intelligence network during the American Revolutionary War, symbolizing its investigative research approach.

Culper claims to be an investigative investment research organization, mainly targeting companies and assets it believes to have misleading statements, capital misuse, or accounting issues, and revealing risks through public research reports. In 2021, it was ranked among the top five most aggressive short-selling firms worldwide by Activist Insight (Insightia).

In the past, Culper’s short research targets were mostly high-growth stocks such as AppLovin, Archer Aviation, Zeta Global, etc. Recently, it has also extended its research focus to the cryptocurrency market.

Key Shorting Point: Fusaka Upgrade Worsens ETH Economic Model

In a report titled “Ethereum (ETH USD): What Vitalik Knows, and Tom Lee Doesn’t,” Culper points out that the Fusaka upgrade in December 2025 significantly increased the L1 Gas Limit from 45 million units to 60 million units, originally intended to reduce transaction fees and increase mainnet usage. However, the report argues that this upgrade greatly overestimated demand elasticity, leading to a real drop in Gas fees of about 90%, far exceeding the initial estimate of 10% to 30%.

Culper highlights two main consequences of the Gas fee plummet:

1. Significant Increase in Address Poisoning Attacks

Address poisoning involves attackers sending tiny transactions (dust) to victims’ wallets and using similar wallet addresses to trick users into transferring funds to scam addresses.

Analysis of on-chain data from January 2025 to February 2026 shows that after the Fusaka upgrade, the number of address poisoning attacks increased by over three times. About 95% of new wallet addresses are related to such attacks, and over 50% of transaction growth comes from address poisoning activities. By February 2026, approximately 22% of Ethereum mainnet transactions were address poisoning attacks. Culper states this indicates that the perceived increase in active addresses and transaction volume may actually be due to a rise in scam activities.

2. Validator Rewards Decline, Staking Economics Under Pressure

The report also notes that the decline in Gas fees has led to a significant decrease in validator rewards. With excess block space, many low-value transactions fill blocks, making legitimate transactions no longer need to compete with high fees for priority. As a result, validator earnings decrease, ETH staking yields drop, and staking demand may decline, creating a negative cycle for network security. Culper believes that if block capacity continues to expand without matching demand, ETH’s deflationary model will weaken or even revert to inflation.

Vitalik Selling ETH as a Warning Signal

The report also mentions that Ethereum co-founder Vitalik Buterin announced the sale of 16,384 ETH in January 2026 to support project funding, but on-chain data shows the actual sale exceeded 19,000 ETH. Culper suggests that this indicates Vitalik may have already realized the structural issues caused by the Fusaka upgrade. The report even directly criticizes well-known bull Tom Lee, chairman of BitMine, for misinterpreting the increase in active addresses and transaction counts as institutional adoption growth.

Competition from Solana and Layer 2

Besides token economics issues, the report points out that Ethereum is facing more intense competition. Solana’s transaction volume has surpassed Ethereum, and Ethereum Layer 2 solutions (Optimism, Arbitrum) are capturing a large portion of mainnet activity, with about 85% of transactions occurring on L2. Culper believes that even with continued growth in RWA and stablecoin markets, value may not flow back into ETH tokens themselves.

Culper Turns Bearish on ETH, Diminished Value Capture

Finally, Culper states in the report that Ethereum may repeat a pattern in tech history: the platform creates the industry, but the actual value is captured by later companies. Using Netscape and Nokia as examples, it suggests ETH might become infrastructure, but the value will be absorbed by other chains or application layers. Culper concludes: “We believe ETH’s ability to capture value is declining, and ultimately holders may not gain substantial economic benefits. We are shorting ETH.”

This article about the short-selling firm Culper releasing a bearish report on Ethereum: Fusaka upgrade damaging ETH token economy was first published on Chain News ABMedia.