Culper Research published a short report on Ethereum (CRYPTO: ETH) on Thursday, calling its economics “impaired” and warning the network may be entering a “death spiral.”

The short seller also accused Fundstrat’s Tom Lee of “throwing good money after bad” through his ETH treasury company BitMine Immersion Technologies (NYSE:BMNR).

The report’s title says it all: “What Vitalik Knows, and Tom Lee Doesn’t.”

What Happened

In the short report, Culper says the Fusaka upgrade was supposed to cut transaction fees by 10-30%.

Instead, fees collapsed by roughly 90%, gutting the EIP-1559 burn mechanism that once made ETH deflationary.

The firm says Vitalik and validators “miscalculated Layer-1 demand elasticity by 3-9x based on outdated math.”

Staking yields have fallen below U.S. Treasuries.

The firm analyzed every ETH transaction from January 2025 through February 2026 and found 95% of new wallet growth post-Fusaka came from spam.

Address poisoning and dusting attacks now make up 22.5% of all ETH transactions, a 3x increase.

Culper says it tested this by setting up two fresh wallets and transferring between them.

It was targeted by poisoning attacks within five minutes.

“The flywheel is now running in reverse,” the report said.

The Tom Lee Problem

The report takes direct aim at Tom Lee, who has argued rising active addresses prove Ethereum’s fundamentals are strengthening. “Ethereum is not in a death spiral because utility is going up,” Lee has said.

Culper’s response: the activity Lee cites as institutional adoption is “in reality, explained by a flood of low-value address poisoning.”

BitMine holds 4.4 million ETH with an estimated $7.4 billion in unrealized losses.

Lee called the pullback “attractive” last week and added another 50,928 ETH.

What Vitalik Is Doing

Culper points to co-founder Vitalik Buterin selling over 19,300 ETH this year, worth roughly $40 million, after initially announcing plans to sell only 16,384.

“Vitalik is selling, while bulls like Tom Lee are clueless as to ETH’s new reality. We’re with Vitalik,” the report said.

Buterin has cited personal and philanthropic reasons for the sales.

What Prediction Markets Say

Ethereum is down 4% today in a broader risk sell off, and is now trading under $2000.

On Polymarket’s ETH 2026 price contract, traders give ETH only a 27% chance of touching $4,000 again this year and a 69% probability it drops below $1,500.

U.S. spot Ethereum ETFs have bled $2.76 billion in net outflows over four months.

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