Ether Approaches $2,000 After Shanghai Upgrade, Outshines Bitcoin

Ether rose to $1,994 on Thursday, hitting its highest point since August.

The rally to an eight-month high comes on the back of a successful network upgrade called Shanghai, or Shapella. The upgrade implemented in Asian hours enables withdrawals for users who have staked their ether, a process that helps secure and validate transactions on the blockchain. In the first few hours after the upgrade was published, Ether traded fairly flat.

The second-largest cryptocurrency by market capitalization has gained over 3% since the upgrade, while market leader bitcoin has added less than 2%, CoinDesk data shows. The ether-bitcoin ratio has risen above 2.5%.

“We are seeing a ‘sell the rumor buy the fact’ redux. ETH underperformed BTC with uncertainty around the upgrade and potential supply dynamics from the unlock. Now the risk event is over, no significant selling pressure, the market can unwind short hedges and rebalance towards ETH,” said David Brickell, Director for institutional sales at crypto-liquidity network Paradigm, to CoinDesk.

Heading into the central hard fork, analysts were divided on how the backwards-incompatible upgrade would affect the price of ether, with some predicting an investor rush to liquidate holdings.

However, the sales pressure will probably be less than what the market initially feared, according to North Rock Digital’s founder Hal Press.

“There was a huge backlog of 15k [validators] waiting to enter the exit queue, which did so in a linear fashion. Now that they’ve been dealt with, it’s flatlined. Puts us on track to clear the queue in ~2 weeks and is in line with my previous estimate of ~$300M total sales pressure.” Hal Press tweeted.

“This is still much more bullish than my assumptions a couple of weeks ago,” Press added.

Overall, demand for unstaked ether has been moderate, as a significant portion is currently held at a loss. The biggest unstaker so far has been Kraken, which is shutting down its betting service for US users as part of a settlement with the Securities and Exchange Commission.

“Over 77% of ETH withdrawn has been from the Kraken exchange, and the majority of ETH withdrawn by validators outside of this are rewards, not rewards plus initial stake. This is more constructive than the market potentially expected,” Lewis Harland , portfolio manager at Decentral Park Capital said.

“With withdrawal restrictions in place and liquid stake derivatives like Lido not implementing withdrawals until May, we believe the market is realizing they over-indexed on the upgrade concerns, allowing ETH to finally test the $2,000 level again,” Harland added.

Liquid stake solution Lido makes up around 31% of all ether deposits. So far, 108,402 ETH has been unexposed, according to data source Nansen.

Year to date, ether is up 65.25%, compared to bitcoin, up 82.04%.