The Ethereum blockchain is set to undergo a major upgrade, known as “Shapella,” which will give users access to around $30 billion worth of ether that has been locked in the network since late 2020. However, some experts predict that the upgrade could lead to a drop in ether prices as users sell off their holdings. Henry Elder, head of decentralized finance at Wave Digital Assets, believes that the upgrade will be a “sell the news” event for ether and governance tokens of liquid staking solutions like Lido, which have been rallying since January in anticipation of the hard fork. Elder expects the withdrawal queue to fill up immediately and stay full for several weeks, leading to a market sell-off. However, other experts, such as Sean Farrell, head of digital asset strategy at FundStrat, believe that the market is overly pessimistic about the supply-side effects of upcoming staking withdrawals and that an ether-bitcoin rally could occur in the weeks following the upgrade.
Laurent Kssis, a crypto trading adviser at CEC Capital, predicts that traders who have bought into ether ahead of the Shanghai event will dump their ETH on the market following the successful implementation of the upgrade. Kssis believes that traders will sell their ether following the upgrade because they have made money for their locked-up time, resulting in a strong supply of ether flooding the market. He sees ether possibly dropping below $1,700 for the first time in two weeks as investors take profits through. At press time, ether traded near $1,875, representing a 56% year-to-date gain, per CoinDesk data.
The LDO governance token of Lido Finance, the largest liquid staking protocol with some $8.4 billion of staked ether on the platform, has gained 26% since the start of the year, while competitor Rocket Pool’s RPL has gained 70% since January. The ether-bitcoin ratio has declined 13.6%, contrary to the rise of around 58% in the month before Ethereum implemented a software upgrade called Merge in September last year. The decline in ether-bitcoin suggests that fears of a post-upgrade supply boost have been priced in to some extent.
Several industry experts, including Galaxy Digital, have recently said that the selling pressure from partial withdrawals will be distributed over several days. “We expect 553,650 ETH will be sold. Amortized over 7 days, this amounts to approximately 1% of daily ETH volume (including spot and perpetual futures volume) of selling per day for a week,” analysts at Galaxy Digital said in a note published early this month. “Depending on the risk environment broadly and overall liquidity in Ether during the Shanghai upgrade, expected on Wednesday, April 12, we view this amount as ranging from inconsequential to slightly bearish ETH/USD.”
Overall, the Ethereum blockchain’s upcoming upgrade is expected to have a significant impact on the ether market. While some experts predict a sell-off, others believe that the market has already priced in the expected uptick in selling pressure and that the market could bounce back after the event in a classic “buy the news” move. Only time will tell what the true impact of the upgrade will be on the ether market.
