The Ethereum Foundation has announced April 12 as the launch date for the highly anticipated Shanghai and Capella upgrades (also collectively known as Shapella).
The upgrade will allow withdrawals from Ethereum 2.0 staking contracts. The pledge contract was launched for the first time in December 2020. After the upgrade, only one-way ETH recharge is accepted.
To date, users have deposited more than 18 million ETH, worth approximately $32.5 billion, into Ethereum staking contracts since December 2020.
Analyst Estimates ETH Selling Pressure
Most users choose Liquid Staking Derivatives (LSD) over decentralized or centralized exchanges. Since these stakers are already liquid, there may be no new reason to sell after the Shapella upgrade.
Decentralized LSD platforms like Lido currently account for approximately 33.2% of all ETH deposits on the Beacon Chain. Of the rest, about 27.1% were sent through centralized exchanges such as Coinbase, Binance, and Kraken. Thus, 60.3% of staked ETH is deposited through the liquid staking facility.
On the other hand, the illiquid ETH directly deposited into the contract by setting up nodes or third-party service providers accounted for about 40% of the total. This will likely be for sale once unlocked.
According to Nansen analysis, about 59% of the illiquid deposits, ranging from 3.62 million to 4 million ETH, are profitable. These users are likely to withdraw some or all of their ETH once the withdrawal function is activated.
Some illiquid stakers may also choose to reacquire, with Nansen’s report estimating total sell pressure between 1.2 million and 3 million ETH. However, all ETH will not be released to the market immediately.
Views on Daily Selling Pressure
The Shapella upgrade will implement partial and full withdrawal systems in two tiers.
The minimum stake amount for ETH is 32 ETH. Stakers can withdraw amounts in excess of 32 ETH or withdraw the full 32 ETH, plus additional rewards from the staking contract.
There will be no rush to withdraw ETH after an upgrade causes gas prices to spike. There will be no gas fee for ETH withdrawals, but will be limited to 16 partial or full withdrawals per block. Therefore, there will be a delay in the amount of ETH unlocked and sold.
According to Nansen, there will be three stages of ETH selling pressure after the upgrade.
During the first phase, which will last 27 hours after the upgrade, the selling pressure from partial withdrawals will be approximately 84,000 to 125,000 ETH (approximately $133 million to $197 million) per day.
The second phase will see the greatest selling pressure from partial and full withdrawals, with additional selling pressure of up to 136,000 and 173,000 ETH (approximately $218 million to $275 million) per day. This phase will last from the third day to the fourth day after the upgrade.
The final phase of selling pressure, mostly complete exits, will last 19 to 52 days, plus selling pressure of 48,000 to 53,000 ETH per day.
Shapella’s updated sell pressure forecast.Source: Nansen
The 30-day moving average of inflows to exchanges was 313,533 ETH (worth ~$550 million), meaning additional inflows would be between 15% and 55% of the moving average. This could send ETH prices lower until the selling pressure eases within 3 to 8 weeks.
Another estimate by Arcana Research shows that about 1.3 million ETH will be sold in the first ten days due to partial and full withdrawals. The selling pressure will peak in the first three days, with a daily selling pressure of approximately $527 million (adjusted for Ether’s current price of $1,800). It accounts for about 6.4% of ETH’s daily trading volume.
With less than two weeks until the upgrade, traders can try to overcome the selling pressure by shorting the futures market. So far, neither the open interest in the futures market nor the short funding rate has shown significant growth.
Initiating ETH withdrawals reduces the risk of holding liquid collateralized derivatives purchased through decentralized or centralized exchanges, as they can be exchanged directly into ETH. Therefore, marginal investors’ positioning interest will offset selling pressure to some extent.
The Ethereum collateralization ratio, which is the percentage of ETH staked relative to its total circulating supply, is 14.96%. This figure is significantly lower than the industry average of other Layer 1 blockchains. In the long run, the ETH-to-collateral ratio is also expected to increase.
Technically, the ETH/USD pair faces resistance at $1,970. A break above this resistance could see the pair reach upside targets around $2,330 and $2,750. In case of a downturn, support lies around $1,569.
Weekly ETH/USD price chart. Source: TradingView
The ethereum network will undergo one of its biggest upgrades since its merger in September 2022. Shapella’s upgraded ETH withdrawals are likely to see increased sales in the first few days after implementation, putting short-term pressure on prices. However, as selling pressure eases and more users switch to ETH due to reduced risk and higher yields, market conditions may start to turn more favorable in the long run.
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As reported by Cointelegraph
