The Ethereum Foundation has announced April 12th as the implementation date for the long-awaited upgrade from Shanghai and Capella, collectively known as Capela.
The upgrade allows withdrawals from Ethereum 2.0 staking contracts. The staking contract was first launched in December 2020. It only accepts one-time deposits of ETH, which will change after the upgrade.
To date, users have deposited over 18 million ETH into Ethereum staking contracts multiple times since December 2020, worth approximately $32.5 billion.
Analysts Differ on ETH Selling Pressure Estimates
Most users opted for liquid staking derivatives on decentralized or centralized exchanges. Since these strikers are already liquid, there probably won’t be any more reason to sell after the Shepela upgrade.
Decentralized LSD platforms like Lido currently account for around 33.2% of the total ETH deposits on the Beacon chain. Of the rest, around 27.1% is deposited through centralized exchanges such as Coinbase, Binance and Kraken. For example, 60.3% of ETH stakes are stored through liquid staking media.
On the other hand, Illiquid ETH, which is deposited directly into contracts by setting up nodes or third-party service providers, accounts for about 40% of the total amount. They are most likely to be sold after unlock.
According to Nansen’s analysis, about 59% of illiquid deposits, between 3.62 million and 4 million ETH, are profitable. These users are likely to make partial or full recordings once recording is enabled.
Some untargeted strikers may also opt to redistribute, and the Nansen report estimates the total sell push to be somewhere between 1.2 million and 3 million ETH. However, not all ETH will be immediately released into the market.
Reflections on Daily Selling Pressure
The Shepela upgrade will implement a partial and full two-level recording system.
The minimum amount to bet on ETH is 32 ETH. Stakers can withdraw any amount in excess of 32 ETH or withdraw the entire 32 ETH in full, as well as additional rewards from the staking contract.
There will not be a situation where strikers rush to withdraw their ETH after the upgrade, causing gas prices to skyrocket. There is no gas fee on Ether withdrawals, but is limited to 16 partial or full withdrawals per block. So the amount to be taken to unlock and sell ETH will be delayed.
According to the Nansen report, there will be three phases of ETH selling pressure following the upgrade.
In the first phase, which will run 27 hours after the update, the selling pressure of partial exits will be around 84,000 to 125,000 Ether per day (~$133M – $197M).
The second phase will see maximum selling pressure from partial and full exits, with additional selling pressure increasing to 136,000 and 173,000 Ether per day (~$218M – $275M). This phase lasts between the third and fourth day after renewal.
The final phase of selling pressure, with mostly full withdrawals, lasted between 19 and 52 days, with daily selling pressure ranging between 48,000 and 53,000 Ether per day.
The 30-day moving average of exchange inflows stood at 313,533 ETH (worth approximately $550 million), which means that additional inflows would be between 15% and 55% of the moving average. This could depress Ether prices until the selling pressure subsides in three to eight weeks.
Another estimate of Archana Research found it About 1.3 million ETH will be sold in the first ten days due to partial and full withdrawals. The selling pressure will peak in the first three days with daily selling pressure of approximately $527 million (adjusted for the current price of Ether of $1,800). This is approximately 6.4% of the daily trading volume of ETH.
With less than two weeks until the upgrade, traders may try to avoid selling pressure by placing short orders in the futures market. So far, the futures market has not shown a significant increase in open interest volume or short order funding rates.
Related: Shanghai’s Ethereum Upgrade Could Give a Boost to Liquid Staking Derivatives — Here’s How
The introduction of ETH withdrawals de-risks liquid staking derivatives purchased through decentralized or centralized exchanges as they are instantly exchangeable for ETH. Thus, renewed interest from investors sitting on the sidelines will counter some selling pressure.
The Ethereum staking ratio, ie the percentage of ETH held relative to the total circulating supply, is 14.96%. This is much 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 $1,970 level. A breakout above this resistance could allow the pair to hit bullish targets near the $2,330 and $2,750 levels. Bearishly, support is near $1,569.
The Ethereum network will undergo one of the most extensive upgrades since the merge in September 2022. The first few days after the implementation of ETH withdrawals following the Shpela upgrade are likely to see more selling, which will keep the price under pressure in the near term. However, as the sell-off slows down and more users start staking ETH due to the lower risk and higher rewards, the market may reverse further in the long run.
The views, opinions and opinions expressed here are solely those of the authors and do not reflect or represent the views and opinions of Cointelegraph.
This article does not constitute investment advice or suggestion. Every investment and trading move involves risk and readers should do their own research when making decisions.
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