Last updated on May 3rd, 2024 at 08:17 pm
Over the last 24 hours, Ethereum’s (ETH) price has surged by 6%, hitting $1,997 at the time of writing, and its 24-hour trading volume stands at 15.12%, all attributable to the successful execution of the Shanghai (Shapella) upgrade. ETH has increased by 18% in the last month and by 65% since the beginning of the year.
The risk of large, sudden injections of ETH into the market, and the resulting potential for significant price drops, has been reduced by the imposition of daily withdrawal limits.
This, combined with the expected success of withdrawals, has the potential to make ETH staking more appealing to both individual and institutional investors. As a result, the completion of the Shanghai upgrade may have a positive impact on the performance of Ethereum.
NEWSFLASH: #Ethereum‘s #ShanghaiUpgrade is now complete.
Tens of $billions of #ETH that was staked since before the move from PoW to PoS is now eligible to be unstaked/withdrawn.
— DeFi Planet (@PlanetDefi) April 12, 2023
Concerns had been raised that the unlocking of 16.3 million staked ETH, estimated to be worth $30.5 billion after the Shanghai upgrade, could cause tokens to flood the market and subsequently spark a massive selloff. However, Ethereum’s unstaking process includes a countermeasure that makes it impossible to withdraw all staked ETH at once.
The developers have set limits on the number of full withdrawals that can be processed in a day, which currently stands at 1,575 full withdrawals per day based on the total active validator count of between 458,752 and 524,288.
In other words, assuming 512,000 active validators and the limit of 1,575 full withdrawals per day, it would take around 325 days to withdraw all staked ETH.
According to a tweet by ScopeProtocol, approximately 50% of stakers are in a negative position, which implies they may opt to hold onto their stakes and wait for the price to rise before selling. Thus, the successful implementation of the Shanghai upgrade can be considered a significant milestone for Ethereum as a whole.
Worry about the #Shanghai Upgrade $ETH selling pressure?
We made a graph to let you know the staker’s avg. cost.
Key Points:
1. Avg Cost: $2153 > Current $1850
2. 50% of the stakers in loss & 50% in profit
3. Major Range:
$500-$700
$1100-$1800
$2400-$3200Thoughts?🤔 pic.twitter.com/9Pq1XS4ZYh
— 0xScope (🪬 . 🪬) (@ScopeProtocol) April 10, 2023
Analyzing Market Reaction Post Shanghai Upgrade
The completion of Ethereum’s Shanghai upgrade has fueled optimism among investors and increased the likelihood of ETH breaking through the key resistance level of $2,500. This achievement could lead to further consolidation of gains in the current market scenario.
Although the update was relatively easy to implement, it is important to remember that we previously mentioned that Shanghai’s activation could potentially cause a massive amount of ETH to flood the market, as it unlocks approximately 16.3 million staked ETH worth $30.5 billion.
As of now, it seems that our prediction is holding true. About $1.6 billion worth of ETH is currently awaiting withdrawal, which is a substantial amount considering that the Shanghai upgrade has only been operational for less than 24 hours.
💥$1.64B in #Ethereum is pending Withdraw after the Shanghai Update!
— Crypto Rover (@rovercrc) April 13, 2023
However, it is important to note that the $1.6 billion represents just 5% of the total amount that has been staked and only 1.3% of the overall ETH in circulation. Therefore, unstaked ETH will gradually enter the market without causing significant disruptions to prices.
Over and above, the fact that the price of ETH has increased by 6% today suggests that Shanghai’s impact on Ethereum is more beneficial than detrimental.
What do Investors and Analysts think about the Shanghai Upgrade?
@Atareh, a Twitter user, questioned whether the price of ETH would increase or decrease with the Shanghai upgrade, simplifying the outcomes into two: Bull Case or Bear Case.
Atareh then suggested a scenario for the Bear case, in which $36 billion worth of ETH would be locked for 1.5 years at an average price of $590. Since ETH has since increased by more than three times that amount, Atareh believes that many people may unstake and sell, leading to a price drop.
However, Atareh also highlighted the benefits of an ETH Bull case, pointing out that those who staked their ETH in December 2020 demonstrated their strong belief in Ethereum, taking on significant risk due to the possibility of ETH 2.0 failing and the Shanghai update not occurring.
This suggests that these stakers are likely long-term thinkers with a high-risk tolerance and will not rush to sell their staked tokens when an unlock occurs. Therefore, the perceived sell pressure may be overstated, leading to a bullish outlook for ETH.
In short, the people that staked are long-term thinkers with high risk tolerance.
This is generally not the group of people that are rushing to sell their tokens when an unlock happens
So the sell pressure might be overstated, meaning…
Bullish 📈 📈📈
— atareh.eth | THE 🅳🅰🅼 SHOW (@atareh) April 12, 2023
Another user, @Kamikaz_ETH, pointed out that the dump was never going to occur instantaneously, and too many investors were using leverage. Kamikaz_ETH suggested that if everyone is excessively optimistic and leveraging up, it would be easy for major players (whales) to dump the price. Therefore, waiting a few days before making a sizable purchase is prudent to avoid falling victim to a scam dump.
In February, JPMorgan analyst Nikolaos Panigirtzoglou published research projecting that the staking ratio of Ethereum would increase to 60% upon completion of the Shanghai upgrade.
The research suggests that if the staking ratio gradually reaches the average of other significant Proof-of-Stake networks, which is 60%, the number of validators may rise from 0.5 million to 2.2 million, resulting in a decline in yield from the current 7.4% to approximately 5%.
The research also suggests that the use of liquid staking protocols may decrease as derivative tokens from these protocols are gradually reaching parity with ETH.
Disclaimer: This piece is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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