Cryptoanalysts Divide Ether Market Trends After Ethereum’s Shanghai Upgrade

The Ethereum blockchain’s Shanghai upgrade, or more accurately called “Shapella,” is almost here. The backwards-incompatible hard fork will give users access to around $30 billion worth of ether locked up in the network since late 2020.

Some observers expect ether price to swoon after the upgrade as users liquidate their holdings, while others believe that the expected increase in selling pressure is already baked in and the market will bounce after the event in a classic “buy the news”.

Henry Elder, Head of Decentralized Finance at Wave Digital Assets, sees the upgrade as a clear “sell the news” event for ether and for tokens of liquid staking solutions like Lido, which have been rallying since early January in anticipation of the hard fork. .

“We should expect the withdrawal queue to fill up immediately, and stay full for several weeks,” Elder said. “This will look like the fulfillment of the ‘supply flood’ narrative and markets will likely sell off.”

Elder added: “Most withdrawals will likely come from early individual stakers who now want to rotate to floating staking solutions, and early adopters of now dominant staking solutions who want to rotate to minority staking solutions to increase decentralization.”

While the entire stack of over 18 million coins cannot be withdrawn immediately, partial withdrawals of just over one million coins earned as a reward for staking can be processed immediately. The one million ETH represents a potential selling pressure after upgrading.

According to Laurent Kssis, a crypto trading advisor at CEC Capital, ether has rallied ahead of the event and could come under pressure upon successful implementation of the upgrade.

“Traders have bought the news ahead of the Shanghai event and if the event is successful they will dump their ETH on the market,” Kssis said. He predicts that traders will sell their Ether after the upgrade in the belief that they have made money on their locked time, and this will cause a strong supply of Ether to flood the market.

Kssis said he sees ether falling below $1,700 for the first time in two weeks as investors take profits.

At press time, ether was trading near $1,875, representing a 56% annual gain, per CoinDesk data. The LDO token of Lido Finance, the largest liquid staking protocol with around $8.4 billion of ether staked on the platform, is up 26% since the start of the year, while competitor Rocket Pool’s RPL is up 70% since January.

Sean Farrell, head of digital asset strategy at FundStrat, suggested otherwise, saying the market is overly pessimistic about the supply-side effects of upcoming withdrawals.

“Factors such as existing liquidity access for most players, restrictions on withdrawal queues and a market that has de-risked prior to the Shapella upgrade reduce the risk of a sudden supply overhang,” Farrell said in an interview with CoinDesk.

“With that in mind, it is reasonable to expect an ether bitcoin [ETH/BTC] rally in the weeks following the completion of the event,” Farrel added.

While ether has charted double-digit gains this year, the cryptocurrency has underperformed market leader bitcoin by a significant margin. Bitcoin has risen over 70% this year. The ether-bitcoin ratio has decreased 13.6%. That’s in contrast to the rise of around 58% in the month before Ethereum implemented a software upgrade called Merge last September.

The decline in ether-bitcoin suggests that fears of a post-upgrade supply surge have been priced in to some extent. Also, several industry experts, including Galaxy Digital, have recently said that the selling pressure from partial withdrawals will be spread over several days.

“We expect 553,650 ETH to be sold. Amortized over 7 days, this represents about 1% of daily ETH volume (including spot and perpetual futures volume) of sales per day for a week,” analysts at Galaxy Digital said in a note published early this month. “Depending on the general risk environment and general liquidity in Ether during the Shanghai upgrade, expected on Wednesday, April 12, we see this amount as ranging from negligible to slightly bearish ETH/USD.”