Ethereum Investors Don’t React as Strongly as Expected to Shanghai Upgrade

July 19, 2023 - Around 6 mins mins to read

Ethereum’s Shanghai upgrade, also referred to as the Shapella upgrade, is a hard fork launched in March 2023 that introduced much-needed EIPs affecting EVM functionalities, such as enabling validators to withdraw their assets from the Beacon Chain and Layer 2 fee reductions. Several projects in the crypto space have started working on a more accessible way to stake on Ethereum, such as liquid staking, which allows individuals to contribute smaller amounts of ETH, receiving a receipt that’s redeemable for the staked tokens. As mentioned earlier, the Shanghai upgrade has several EVM proposals, but they will be implemented in time. For example, proto-danksharding, which will increase scalability, is due in 2024.

Many have been concerned that unlocking staked assets would result in a mass exodus or price collapse. More precisely, it was assumed that Ethereum investors would withdraw their staked ETH without delay and sell it following the Shanghai upgrade, having implications for the Ethereum ecosystem in the future. A decline in Ethereum’s price could lead to increased volatility in the DeFi sector, removing billions in value from protocols and threatening decentralized exchange liquidity. Curiously, that didn’t happen, with investors taking a different stance. The Shanghai upgrade has been bullish for the ETH price, with the biggest earners on the network sending their fees back.

Professional Investors Are Less Bearish, So Market Sentiment Is Positive

Ethereum’s size and market dominance have been able to absorb the impact of the Shanghai upgrade, so there’s no question about price volatility. As a matter of fact, ETH investors have become more bullish after the Shanghai upgrade, having high confidence in quick and steady returns based on positive price movements. Cryptocurrency’s most recent woes could be bypassed. As we can all remember, pricing has responded to regulatory intervention – taxation, anti-money laundering, consumer protection, and licensing. Ethereum is above $1,800, so it appears to have been stable in recent days. Cryptocurrency markets have experienced an upswing after the FDIC announced that it would back all deposits in Silicon Valley.

Withdrawal functionality was enabled as part of the Shanghai upgrade on April 12. Less than 1% of Ethereum’s validators redeemed the rewards earned from staking ETH after the Shanghai upgrade went live. Roughly 285 withdrawals were processed for 5,413 tokens. Ethereum’s highly anticipated tech upgrade increased demand for staking among institutional investors, including traditional finance firms, addressing earlier concerns that unlocking assets could lead to dramatic selling pressure and a price crash. As highlighted by crypto analytics platform Cryptorank, the Ethereum deposit contract balance exceeded $ 40 billion; more than 4.4 million ETH coins have been deposited in the Ethereum 2.0 staking contract since April 12.

Ethereum’s Price Has Also Benefited from Increased Investor Confidence

Ethereum’s price has risen slowly but surely following the Shanghai upgrade, breaking the $2000 barrier for the first time since April 2022, after investors have put uncertainty behind them. Simply put, the market reacted positively to the new change, propelling ETH to yearly highs of above $2000. Even now, investors are optimistic but cautious, meaning they prefer stabler, low-risk investments. The Shanghai upgrade is beneficial for Ethereum in the long-term, as it enables more liquidity to investors and stakers alike, not to mention that it’s a catalyst for institutional participation. Liquidity in the cryptocurrency markets lowers investment risk and helps develop an exit strategy, so it’s simpler to sell holdings.

Going Forward, The Increase in Staking Could Help Ethereum Price Move Upwards

Ethereum staking has been coherent since its inception in 2020. Validators don’t work for free: they earn rewards for validating blocks (and the entire community can participate). Ethereum’s Shanghai upgrade didn’t cause a massive sell-off. As a matter of fact, staked ETH reached an all-time high; even those who sat on the sidelines during the initial staking rush are comfortable staking Ethereum. Ethereum currently sits at $1,867.32, so it’s certainly not the crash that many feared. Numerous node operators began restaking days after the Shanghai upgrade, yet it’s not clear how many of the original nodes that left the network after the tech upgrade have restaked.

Not only has Ethereum taken some profits, but also staking has witnessed a large wave of growth. This translates into the fact that Ethereum investors are more confident in their ability to derive value from staking and passively accrue rewards, regardless of the ETH price. This increase in staking could reduce the circulating supply, which in turn could result in an increase in Ethereum’s price. In other words, the shortage on the market could trigger price gains if demand outpaces supply. When the demand for an asset exceeds the volume of sell orders, competition naturally increases, so buyers are tempted to increase their bid price to fulfill their orders in a timely manner.

If Ethereum increased in price, it would consolidate its position among other cryptocurrencies, so investors would buy ETH instead of Bitcoin. Taking into consideration the negative sentiment in the altcoin markets, Ethereum will most likely benefit from its rebound in the upcoming weeks. In the development of Ethereum’s platform, which includes improvements, the price will continue to reflect the added value. As with investing in any other asset, it’s necessary to keep yourself updated on the subject – the more information you have, the better decisions you’ll make. Cryptocurrency is a phenomenon that no one really understands.

Wrapping It Up

To sum up, Ethereum investors have reacted to the Shanghai upgrade contrary to expectations, acting with the belief that the price will rise. Being bullish means buying to profit by selling in the future once the price has risen. The network has seen more Ethereum coming than leaving, indicating that ETH remains a strong investment choice. With more upgrades and developments on the horizon, it’s exciting to see what the future holds for Ethereum. The roadmap is the result of years of work undertaken by researchers and developers, with ideas starting out as discussions. Proto-danksharding will make Layer 2 rollups more affordable for users by introducing blobs of data.

DISCLAIMER: The information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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