Investing

Selling Pressure After Shanghai Upgrade Likely to Not Impact ETH's Price: Report

Ruholamin Haqshanas

Published: April 12, 2023 8:50 am

Last Updated: April 12, 2023 11:58 am

The much-anticipated Ethereum Shanghai upgrade, which will include code allowing withdrawals of ETH staked in the Beacon Chain, is slated to go live later today. This has led to speculations that ETH will likely face some selling pressure from the upgrade as more than one million ether staking rewards will become instantly available.

However, a report by on-chain intelligence firm Glassnode estimates the selling pressure to be insignificant.

Glassnode Expects 170K ETH to Be Sold After Shanghai Upgrade

In a Tuesday report, Glassnode said it expects just 170,000 ETH ($321 million) to be sold after the launch of the Shanghai upgrade. For perspective, approximately 18 million ETH staked (worth around $33.9 billion), or 15% of ETH’s total circulating supply, will be unlocked following the upgrade.

More specifically, the report estimates that 100,000 ETH ($190 million) worth of staking rewards earned by validators in return for delegating their ETH to nodes will be sold. Another 70,000 ETH ($133 million) in the selling pressure would come from staked Ether.

“We project that only 100k ETH ($190M) of the total accumulated rewards will be withdrawn and sold. Furthermore, we expect to see twice as many validators exiting, but only a limited amount of stake will be released per day. We believe only a fraction of that amount, around 70k ETH ($133M), will actually become liquid.”

Glassnode supported its prediction by explaining that only 253 depositors are waiting to exit their stake and that the blockchain has adopted a few mechanisms to prevent a flood of Ether supply from hitting the market simultaneously.

Notably, most of the 253 exiting depositors are solo-stalkers or stakers from the early days of the Beacon Chain. Glassnode said this could mean that their “withdrawals are most likely related to a change in their technical setup, rather than exiting their position.”

Furthermore, the company claimed that the selling pressure is likely to be absorbed by market participants, which could further offset any price drops. Glassnode concluded that the hard fork would not have a “dramatic” impact on the price of ETH.

“Even in the extreme case where the maximum amount of rewards and stake are withdrawn and sold, the sell-side volume still falls within the range of the average weekly exchange inflow volume. Therefore, we conclude that even the most extreme case will have an acceptable impact on the price of ETH.”

Ethereum to Finalize Transition to PoS with Shapella Upgrade

In mid-September last year, Ethereum went through its long-awaited Merge upgrade, which saw the merging of the Ethereum mainnet execution layer and the Beacon Chain’s consensus layer. It shifted from the network’s proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) system.

The upgrade was massive because it removed the need for miners. Instead, validators became responsible for verifying transactions and securing the network. It also made Ethereum much more energy efficient, leading to a more than 99.9% drop in its energy footprint.

For users to become a validator, they have to stake 32 ETH for an indefinite period. Presently, Beacon Chain holds over 563,000 validators. They have accumulated a massive 18 million ETH stake, worth around $33.5 billion, since 2020. Typically, their ETH reward ranges between 4.5% – 5.4% annually.

The Shapella upgrade, as it combines Shanghai and Capella improvements, would be the final piece of the puzzle, marking the end of a long wait for investors who had opted to stake their ETH. Staked ether will no longer be locked up on the blockchain after the upgrade.

Currently, ETH is trading at $1,875, down by around 2% over the past day.

This article originally appeared on The Tokenist