The Ethereum Foundation has announced April 12 as the implementation date for the highly anticipated Shanghai and Capella update, collectively referred to as Shapella.
The updates will allow withdrawals from Ethereum 2.0 staking contracts. The staking contract was first launched in December 2020. It only accepted one-way deposits of ETH, which will change after the update.
To date, users have deposited more than 18 million ETH, worth approximately $32.5 billion, into the Ethereum staking contract at various times since December 2020.
Analysts differ on estimates of ETH selling pressure
Most users opted for liquid staking derivatives on decentralized or centralized exchanges. Because these takers are already liquid, there likely won’t be a new reason to sell after the Shapella update.
Decentralized LSD platforms like Lido currently represent around 33.2% of total ETH deposits on the beacon chain. Of the rest, about 27.1% is deposited through centralized exchanges like Coinbase, Binance, and Kraken. Therefore, 60.3% of the ETH staked is deposited through liquid means of participation.
On the other hand, illiquid ETH, which is deposited into contracts directly by creating nodes or external service providers, accounts for around 40% of the total amount. These are more likely to be sold after you unlock them.
According analysis From Nansen, about 59% of the illiquid deposits, between 3.62 million and 4 million ETH, are in profit. These users are more likely to make partial or full withdrawals after enabling withdrawals.
Some of the illiquid participants could also choose to re-stake and the Nansen report estimated that the total selling pressure would be between 1.2 million and 3 million ETH. However, all of the ETH will not be thrown on the market immediately.
Opinions on daily selling pressure
The Shapella update will implement a two-tier partial and full recall system.
The minimum amount to bet in ETH is 32 ETH. Participants can withdraw amounts greater than 32 ETH or withdraw all 32 ETH, plus additional rewards from the participation contract.
There will not be a situation where participants rush to withdraw their ETH after the upgrade causing gas prices to spike. Ether withdrawals have no gas costs, 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 moved to sell.
According to the Nansen report, there will be three phases of ETH selling pressure after the upgrade.
In the first phase, which will last 27 hours after the update, the selling pressure of partial withdrawals will be around 84,000 to 125,000 Ether per day (~$133 million – $197 million).
The second phase will see maximum selling pressure from partial and full withdrawals, amounting to 136,000 and 173,000 Ether per day (~$218m – $275m) in additional selling pressure. This phase will last between the third and fourth day after the update.
The last phase of sell pressure, mainly with full withdrawals, will last between 19 and 52 days, adding a daily sell pressure of between 48,000 and 53,000 Ether per day.
The 30-day moving average of foreign exchange inflows is 313,533ETH (worth around $550 million), which means additional inflows will be between 15% and 55% of the moving average. This could suppress Ether prices until selling pressure subsides in three to eight weeks.
Another estimate from Arcana Research found that around 1.3 million ETH will be sold in the first ten days due to partial and full withdrawals. Selling pressure will peak in the first three days with a daily selling pressure of around $527 million (adjusted for Ether’s current price of $1,800). It represents about 6.4% of ETH’s daily trading volume.
With less than a fortnight to go until the update, traders can try to get ahead of the selling pressure by placing short orders in the futures market. So far, the futures market is not showing a significant increase in the volume of open interest or funding rates for short orders.
Related: Ethereum Shanghai Upgrade Could Power Liquid Stake Derivatives: Here’s How
The start of ETH withdrawals will reduce the risk of holding liquid staking derivatives purchased through decentralized or centralized exchanges because they will be directly redeemable for ETH. Therefore, the newfound equity interest among investors sitting on the sidelines would somewhat counter the selling pressure.
Ethereum’s participation rate, i.e. the percentage of ETH staked in relation to its total circulating supply, is 14.96%. This is significantly lower than the industry average for other Layer 1 blockchains. The ETH staking ratio is also expected to improve in the long term.
Technically, the ETH/USD pair is facing resistance from the $1970 level. A break above this resistance can see the pair reach upside targets around $2,330 and $2,750. In the event of a recession, support is around $1,569.
The Ethereum network will undergo one of the most extensive post-Merger upgrades in September 2022. Withdrawals of ETH after the Shapella upgrade are likely to increase sales in the first few days after rollout, putting pressure on the Ethereum network. short term on prices. However, as sales slow and more users switch to investing in ETH due to reduced risk and increased returns, market conditions could start to favor a greater long-term upside.
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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.
