The Ethereum Foundation has set April 12 as the implementation date for the Shanghai and Capella updates, abbreviated as Shapla. But what short-term and long-term effect will this update have on the price of Ethereum?
According to Cointelegraph, these updates allow the withdrawal of staked tokens from Ethereum 2.0 smart contracts. Ethereum staking contracts were introduced simultaneously with the launch of Beacon Chain on December 1, 2020. These contracts currently only allow staking (one-way) Ethereum, which will change after the update.
From December 2020 to today, users have invested more than 18 million Ethereum worth about 32.5 billion dollars in the network.
Analysts have different opinions in estimating the selling pressure of Ethereum
Most users have chosen Liquid Staking Derivatives (LSD) in centralized and decentralized exchanges to stake Ethereum. Since these assets are held by users in the form of cash, they probably won’t have a reason to sell their assets after the Shopella update.
Currently, decentralized liquid staking platforms such as Lido Finance hold around 33.2% of all Ethereum deposited. Another 27.1% are invested in centralized exchanges such as Binance, Kraken and Coinbase. As a result, 60.3% of the total staked Ethereum has been deposited on Liquid Staking platforms.
On the other hand, non-cash ETH, which is deposited directly into contracts by running nodes or intermediary service providers, accounts for about 40% of all ETH staked. These are the Ethereums most likely to sell after the update.
According to Nansen’s analysis, about 59% of non-cash deposits are between 3.62 million and 4 million Ethereum in profit. These users are likely to withdraw some or all of their assets after the withdrawal option is enabled.
Some non-cash deposits may also opt for reinvestment. The Nansen report estimated the total value of the selling pressure to be somewhere between 1.2 million and 3 million Ethereum. However, not all Ethereum mined will be released immediately.
Analysts’ estimate of daily sales pressure
In the Shapla update, a partial and full two-level withdrawal system will be implemented.
The minimum Ethereum required for staking is 32 tokens. Investors can withdraw any amount above 32 ETH or all 32 ETH plus the reward received from staking. Users will not be in a rush to withdraw their Ethereum, as this action will lead to an increase in the cost of gas. Ethereum withdrawals have no fees but are limited to 16 Ethereum withdrawals or full withdrawals per block. Therefore, there will be a delay in withdrawing Ethereum and transferring them for sale.
According to Nansen’s report, Ethereum selling pressure will occur in 3 stages.
In the first phase, for 27 hours after the update, selling pressure from partial withdrawals will be about 84,000-125,000 ETH per day, equal to about $133 million to $197 million.
In the second stage, we will see maximum selling pressure from partial and full withdrawals, which will add about 136,000 to 173,000 Ethereum per day, equal to about $218 million to $297 million. This phase will continue between the third and fourth day after the update.
The last stage of selling pressure will last for 19-52 days, mostly with full withdrawals, adding between 48,000 and 53,000 ETH per day to the daily selling pressure.
The 30-day moving average of capital inflows to the exchanges is 313,533 Ethereum worth about 550 million dollars. This means that the additional entry Ethereum will be between 15% and 55% of the moving average. As a result, until the selling pressure subsides within 3-8 weeks of the update, the price of Ethereum is likely to decline.
data estimate Another by Arcana Research shows that as a result of partial and full withdrawals, about 1.3 million Ethereum will be sold in the first 10 days. The selling pressure will reach its peak in the first three days with the sale of about $527 million (with Ethereum at $1,8000) per day. This figure is about 6.4% of the total volume of Ethereum daily transactions.
With less than two weeks to go before the Shapela update, traders may try to ease the selling pressure by entering short trades in the futures market. So far, there has been no significant increase in market contract volume or funding rates for short orders in the futures market.
Initiating Ethereum withdrawals reduces the risk of holding Liquid Staking Derivatives tokens purchased through decentralized or centralized exchanges; Because they will be directly exchangeable with Ethereum. Therefore, generating interest in the stock among new investors will somewhat counteract the selling pressure.
The stake ratio of Ethereum, the percentage of staked Ethereums to the total circulating supply, is equal to 14.96%. This ratio is significantly lower than the average staked tokens on other layer blockchains. Of course, Ethereum’s equity ratio is expected to increase in the long term.
From a technical point of view, the Ethereum/USD pair is facing a resistance level of $1,970. The failure of this resistance can make the Ethereum price reach upward targets in the range of $2,330 and $2,750. If the price decreases, it will first face the support level of $1,569.
On April 12, the Ethereum network will experience its biggest update since the merger in September 2022. After the Shapla update, Ethereum will likely see a sell-off in the first few days, which will put short-term pressure on the price. However, at the same time as the selling pressure decreases, more users will go towards Ethereum investment due to the reduction of risk and increase in profitability, and the market conditions can bring a more upward trend in the long term.
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