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Ethereum’s historic shift last year to a proof-of-stake network – known as “the Merge” – was one of the biggest stories of the year in crypto markets.
Now all eyes are on Ethereum’s next major upgrade expected to take place in March, known as the “Shanghai hard fork,” which will allow participants on the network to unlock ether (ETH) they had staked on the blockchain, inaccessible for months.
The decision to push forward with Shanghai was announced in December, overshadowed at the time by sour sentiment as the crypto industry dealt with fallout from the epic collapse of Sam Bankman-Fried’s FTX exchange.
A new year has arrived, possibly bringing a clean slate, and crypto analysts are sharpening their pencils on how the aether could trade through the next big step of Ethereum.
Ether recently increased by 12% in 2023, reaching $1,410. Several governance tokens of top liquid staking products also rallied, with Lido DAO (LDO) jumping 53% in the past seven days and 92% in the past 30 days, according to data from CoinGecko.
But uncertainty about the ethereum upgrade was also floating around the market, with some traders commenting on the current low staking ratio of the blockchain compared to other blockchains proving the issue. Will stakers dump their tokens on the open market once they’re unlocked, or will they double down in a new era of widespread blockchain staking?
“The Merge was a big step for Ethereum," Coin Metrics wrote in a bulletin. "But in 2023, participants in the Ethereum ecosystem will also continue to struggle with the complex dynamics of evidence of issues."
CoinDesk spoke with five traders and crypto analysts to compile their key insights and predictions about the impact of the Shanghai upgrade market.
Crypto trader Thomas Kralow expects to see a short-term downside move for ETH right before and following the upgrade due to “the daily liquidity not keeping up with the supply of unstaked ETH.” He also notes "the fact that the month of April is the deadline for taxes, which will also not help because many sales usually take place during the tax period." He predicted that the potential fall in prices would not exceed 15-20% and that the EPF would recover quickly. As far as Kralow is concerned, upgrade from Shanghai, if successful, will provide the basis for another important scaling, proto-danksharding, also referred to as – later this year, This would make the etheum more evolutionary thanks to sharing. "Needless to say these enhancements will be incredibly optimistic for ethereum, and any short-term sales pressure will be redeemed either fully or at least partially," he said.
Jeff Dorman, chief investment officer at the digital-asset management firm Arca: “Most investors have heard of blockchain now and want to somehow make money if blockchain succeeds. Over the past five years, almost all investors have tried to come up with different ways of expressing this theme. For the first time, though, we exit a bear market with real product market adjustment," which includes four domains: Bitcoin, stablecoins, non fungible tokens (nfts) and distributed finance (challenge). 'If you want to express all these blockchain domains with a single investment, that would be ethereum. He enveloped bitcoin, Increased presence of stablecoin, greater NFT presence and greater presence of challenge,' he said, in addition: "in certain respects, eth is basically a crypto index now.” dorman said he wouldn’t worry about the potential sell-off pressure from unlocking staked eth following the upgrade: “there might be some pent-up demand to get liquidity from those who have had no liquidity for the last six or so months, but it's going to be easily replaced by people who didn't take equity the first time because they needed cash.”
Lucas Outumuro, head of research at crypto data and analysis firm IntoTheBlock, wrote in a newsletter that ETH withdrawals will be processed through a queue with a maximum of approximately 43,000 staked ETH allowed to exit per day. "On this basis, it would take more than a year for the 15.91 million stakes to be removed, preventing massive removals and alleviating sales pressure," he said. "The fact that people lining up may now be able to opt out, even if they need to be in a queue, could in turn encourage more people to line up."
Kunal Goel, Messari's research analyst, wrote in a report that the total amount of ether staked will likely increase post-Shanghai. Goel stressed that ethereum remains the lowest staking ratio in relation to other major proof-of-participation chains (the staking ratio of other major chains varies between 46% and 97%). Following the upgrade to Shanghai, a range of 30-50% of ethereum’s staking ratio “seems reasonable.” he also predicted that liquid staking protocols lido and rocket pool will benefit from an increase in eth's staking ratio after shanghai, while decentralized protocols without confidence are expected to grow centuries ago.
Brent Xu, founder and CEO at Cosmos-based borrowing and lending platform Umee, expected “some sell pressure” after the Shanghai upgrade. He said it sounded like cosmos, The ethereum liquid staking derivatives are currently facing risks of centralization that "not everybody trusts them", although he expects an upgrade to Shanghai, liquid staking derivatives "shall substantially reduce" staking. He added: "This is a dance between evidence of the preparedness of the game protocol and how decentralized and how people's confidence are liquid staking protocols."
