On April 12, 2022, Ethereum successfully completed the Shanghai upgrade. This major event in the currency circle finally came to an end amidst everyone's expectations and curiosity. It is no exaggeration to say that the successful upgrade of Ethereum affects not only Ethereum itself, but also has a milestone significance for the entire currency circle.
Why is Shanghai’s upgrade so important? Because it marks the complete end of Ethereum’s transformation to POS.
As early as September last year, the Ethereum merger was successful, which not only forever changed the way Ethereum transactions are processed, but also reduced the carbon footprint of the Ethereum network by 99%. However, the Ethereum merger did not give stakers the ability to withdraw ETH and obtain rewards, and these funds remained on the Ethereum network. Now that the Shanghai upgrade is complete, Ethereum has finally opened up these functions. According to forecasts, a large amount of Ethereum will be unlocked in the next 3 months, and it is expected that there will be 18 million Ethereum, accounting for 15.65% of the total.
We will have to wait and see what happens in three months. Now we are more concerned about what chain reactions will occur after the successful upgrade of Ethereum. Are these reactions positive or negative? What impact will they have on the entire cryptocurrency ecosystem?
Sell-off continues, but does not affect market confidence
On Monday (April 17), Ethereum was trading at $2,100, up about 10%, and trading at about $2,100. In the future, Ethereum is expected to continue to maintain high levels, which will make the majority of cryptocurrency traders and investors even more excited.
But after entering Tuesday, the price of Ethereum fell back to $1,950, down about 8% from the high. However, most investors have expected the drop here. Due to the end of the Shanghai upgrade of Ethereum, selling and currency withdrawals are bound to occur. come behind.
The sell-off on Ethereum has been divided into 3 main phases.
The first phase is within 24 hours after the upgrade. During this period, most of the selling pressure came from partial withdrawals, which are interest accumulated over the years, ranging from approximately 84,000 to 125,000 ETH per day. The second phase is from the 3rd to 4th day after the upgrade. During this period, the number of people who want to sell will reach its peak, and it is expected that about 150,000 ETH will be sold every day. The third stage is from the 19th to 52nd day after the upgrade. The selling pressure during this period mainly came from all withdrawals, with a daily selling pressure of approximately 48,000 to 53,000 ETH.
Of course, in addition to these unlocked ETH, tens of thousands of selling pressure may be added to the market, depending on the choice of ETH expiration users. At present, if Ethereum users choose to sell their ETH after expiration, Ethereum may have to face the pressure and crisis caused by additional selling of millions of ETH. This situation must be negative.
However, we don’t have to worry too much about the future direction of Ethereum. There are two main reasons. First, a considerable number of users will choose to unlock their tokens and continue staking. Second, and crucially, retail investors tend to be bearish, while large investors tend to be bullish. We have to admit the fact that large players can determine the direction of the market, and the market is always jointly operated by large players. This is also an important reason why Ethereum Shanghai can still maintain strong momentum 24 hours after the upgrade.
What does the Ethereum Shanghai upgrade mean to everyone?
The influence of Shanghai's upgrade is self-evident, but it plays different roles on different tracks.
For pledgers, the most important thing to do is to wait. Most Ethereum stakers deposit their ETH into the network through intermediaries such as Lido and Coinbase, so they just need to wait for feedback from the intermediary. After the Shanghai upgrade is successful, these pledged ETH will be withdrawn by the pledge institutions on different dates. For example, Lido, the largest ETH staking institution, recently announced that after a series of audits and security checks, they would introduce withdrawal capabilities one month after the upgrade. On the other hand, Coinbase has not yet announced the exact time when the withdrawal function will be enabled. For the small number of independent Ethereum validators, the situation is slightly more complicated. Funds in this group tend to be smaller, but Ethereum requires validators to deposit at least 32 ETH to participate in staking. The verifier must first provide a withdrawal address. Once the withdrawal address is submitted, it cannot be changed. Verifiers can choose to withdraw part or all of the money. Partial withdrawal means sending funds and rewards exceeding the minimum deposit amount (32 ETH) to the verifier's withdrawal address. Full withdrawal includes withdrawing the original deposit of 32 ETH.
So, for most users, they may have to wait for several months before their withdrawal is successful.
For the Ethereum ecosystem, the Shanghai upgrade is the climax of Ethereum's shift to POS, and its symbolic significance is far greater than its actual significance. This upgrade will not change the way users interact with Ethereum, nor will it change the underlying economics of the network. After all, users will be able to sell staked ETH for a long time because most ETH is staked on platforms with liquidity. In the words of Jacob Cantele, Ethereum Layer 2 related product manager, “Shanghai upgrade does not represent a major change in the Ethereum economy.”
For the entire cryptocurrency market, the impact of Shanghai’s upgrade cannot be ignored, and the biggest impact is likely to come from regulatory aspects. As early as when FTX collapsed in November last year, U.S. regulators struck hard and launched a series of severe crackdowns on encryption companies, including those that provide staking services. For example, in February this year, the U.S. SEC fined the Kraken exchange US$30 million, accusing the company's intermediary staking services of constituting illegal securities issuance. Such accusations are likely to fall on Ethereum, which has completed the upgrade.
Of course, a single upgrade will not cause the SEC’s supervision to be upgraded immediately, but it will prompt it to focus on Ethereum itself. According to WSJ reports, as early as September last year when Ethereum was successfully merged, SEC Chairman Gary Gensler stated that "because of the reward mechanism, the POS network can be regarded as a securities issuance", which was almost naming Ethereum. Therefore, it is not ruled out that the entire Ethereum network will be censored and accused one day in the future.
From a technical perspective, Ethereum’s Shanghai upgrade is just a “minor upgrade”, but from a formal perspective, it has a landmark influence and will even affect the nerves of all holders and investors.
On the one hand, even though some users will choose to unlock the tokens and continue to pledge, according to current data, the ratio of withdrawals to new pledges is 8:2, and the number of people interested in withdrawing is far greater than the number of pledges. Even the 20% of users who choose to pledge (approximately between 1501 and 2000 people) will most likely not choose to pledge permanently and may choose to sell at a certain point.
On the other hand, if we look at the problem from a "big picture" perspective, we will find that the significance of the Shanghai upgrade is significant. It allows users to freely stake and redeem Ethereum, which is the biggest benefit in itself. It will help Ethereum open the door to a new world - such a positive policy will make users more willing to stake their idle Ethereum. This also means that more and more users will stake Ethereum, thereby reducing the circulation of Ethereum and pushing up the price of Ethereum.
If you tend to hold Ethereum for the long term, congratulations, the short-term selling peak will not affect your long-term investment strategy. I hope everyone can look at the changes in the market and assets rationally. Fluctuations are inevitable. The key is to understand what exactly you want.
