Ethereum’s Shanghai upgrade will allow the withdrawal of approximately $29 billion of previously locked ETH starting next month. However, according to analysts, this is unlikely to cause serious selling pressure and pull down the price of ETH.
Analysts say that investor fears that the escalation will cause a price drop as ETH floods the market are incorrect. ETH outflows will be much lower than many observers predict.
Nick Hotz, vice president of research at digital asset investment firm Arca, asserted:
“I believe new staker withdrawals and inflows will be cleared.”
The crypto market is eagerly anticipating the Shanghai tech upgrade — the next big development for ethereum since its merger last April. It will allow investor Invest to unlock and withdraw ETH Ethereum’s Pos beacon chain for the first time since staking began in December 2020.
As research firm Bernstein and others recently pointed out, many investors are concerned that the event has the potential to lead to a sharp rise in the price of ETH, which currently trades at $1,572. They suggested that long-term stakeholders could choose to unlock most of the 17.5 million ETH (worth $28.8 billion) in various locations. pledge contract And sell it on the market for a profit.
However, Arca’s Hotz pointed out that the impact of ETH outflows will not be immediate, as withdrawals need to be queued.
“This means that only 10% of all ETH staked can be removed from the pool in a month.”
John “Omakase” Lo, head of digital assets at investment firm Recharge Capital, said people won’t rush out of staking because they need time to understand how Shanghai works.
“There will be a period of time when investors will understand how withdrawals work.”
Rich Falk-Wallace, CEO of institutional crypto data platform Arcana, said that the main driver of ETH price action will be what the market creates in terms of long-term prospects based on short-term behavior.
“If stakeholders regularly exit and are not interested in validating the network, that’s a discount. Conversely, it’s a positive result that ETH staking rates continue to rise after Shanghai.”
Limited selling pressure
Falk-Wallace said that many market observers do not understand the limit on the amount of ETH that can be withdrawn at one time.
The Shanghai upgrade will implement a two-level cash withdrawal system. Partial withdrawals (more than 32 ETH) were executed immediately, but Arcana was scheduled to deliver within 3 days due to queuing. Withdrawals in full (with a minimum stake of 32 ETH) will take longer and release gradually.
According to Arcana analysis, there is $1.2 billion in ETH in some withdrawal pools, which means that in the worst case, only 6% of the average daily ETH volume enters the market every 3 days, first after withdrawals are allowed. After that, in the next 6 months, the maximum daily volume of ETH that the market can sell off will be less than 1% of the daily volume.
In a report published Thursday, cryptocurrency research firm CryptoQuant forecast Staking withdrawals put moderate selling pressure on ETH. According to the report, approximately 60% of all ETH stakes are at a loss at current prices relative to the price each token was staked at.
CryptoQuant says:
“When market participants make huge profits, there is selling pressure, which is not happening now.”
Liquidity Collateralized Derivatives
The emergence of Liquid Staking Derivatives (LSD) will also reduce outflows. LSD allows stakeholders to keep their investments liquid and tradeable by issuing derivative tokens like stETH.
According to Hotz, most investors use liquid staking platforms like Lido or Coinbase to stake ETH. So they don’t need to exit and sell for liquidity.
“People who stake themselves and run their own validator nodes are big fans. Exiting after permission is probably not the first thing that comes to mind.”
ETH staking will grow
According to the report, the stake ratio of the Ethereum blockchain is currently much lower than that of other chains, including Polkadot 48%, Cardano and Solana 71%, or Polygon 38%. data From StakingRewards.
Arcana’s Falk-Wallace expects ethereum’s staking rate to match that of other PoS blockchains after Shanghai, outpacing the number of withdrawers as new stakers join the network.
“We think the ETH staking ratio may gradually increase from 14% today to around 30-50% over the next 18 months to approach parity with other PoS blockchains.”
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