How the Shanghai Upgrade will impact ETH price

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Quick brief: Ethereum’s upcoming Shanghai upgrade, among other things, will give its users the opportunity to unstake ETH on its platform. Since December 2020, more than 18 million ETH has been locked on the blockchain (via staking) without the ability to withdraw these assets. Now, investors will be able to. What are the likely repercussions of this on the price of ETH? We capture some trends below.

1. Investors don’t have an incentive to sell right now

About 54% of ETH’s staked supply is currently at a loss (estimated price on staked date v/s today’s price). This means, investors will have to liquidate the assets below their cost price if they chose to sell today. 

Given that ETH stakers are mostly long-term holders of the asset, this is unlikely to lead to a mass selloff. However, they can be tempted to take some profits out of their ETH earned via staking.

Source: K33 Research, Dune, Glassnode

2. 1.1 million earned ETH will flood the market 

Post the upgrade, investors will be able to unstake their assets over time with a daily limit while the 1.1 million ETH they have earned in interests will be available immediately. That’s about $2 billion worth of ETH. Even in a scenario where everyone chooses to liquidate, compared to the daily trade volume of ETH at $10 billion on April 7, it does not seem to be significant. However, a short-term pull back can be caused in the market if ETH loses some key support levels because of sell pressure.

3. More ETH will staked now that they can be unstaked

Ethereum has the lowest share of staked assets among top layer-1 blockchains at 15-16% compared to 40%+ for others. The Shanghai update will, in fact, aid converting many ETH investors to staking - given the ability to withdraw any time.

This is bullish for the blockchain over the long term. But it has also cast some doubts on its ability to remain deflationary in terms of tokenomics.

However, we believe that adoption for Ethereum will grow when its staking product grows.

4. A sell-the-news event is likely    

We remember how ETH rallied right into the Merge date in September 2022 but immediately retraced all its gains over the next few weeks. We anticipate such a scenario happening next month too. ETH should rally towards $2,000+ levels as the hype around the upgrade peaks. Once the upgrade is confirmed, selling pressure from unstaked ETH and market manipulation will likely lead to a short-term pull back in its price. 

ETH price action leading to ‘The Merge’ in Sep. 2022. Source: TradingView

So when should you buy Ethereum?

Once the upgrade is successful and the dust settles will be the right time to invest in ETH for the long term, we believe. Ethereum continues to be a strong product in terms of adoption and its use case in this ecosystem. It will likely, along with Bitcoin, be the front-runner in terms of risk-adjusted returns over a 3-5 year timeframe.

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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.