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Concerns about an Ether selloff following the upgrade proved unfounded as ETH tested support around $1900 in the hours preceding the upgrade, but saw very little selling pressure immediately after the 10:27 pm UTC implementation before climbing to a session high of $1927 an hour later.
After a final bounce near $1900 at around 2:30 am UTC (10:30 pm ET) it took off, breaking through $2000 just after 8:30 am ET.
Shapella, a combination of the Shanghai and Capella upgrades, was the first major update to the Ethereum network since The Merge, when it switched fully from proof-of-work to proof-of-stake on September 15, 2022.
Shapella’s single most significant change is that it enables validators who have staked the required minimum of 32 ETH to unstake them immediately, and anytime they choose thereafter.
Kitco News spoke with Sili Zhao, Director of Global Business at InfStones before the upgrade. Zhao said he didn’t expect a big price dump for ETH because many of those who withdraw will restake with larger positions, while new market participants will be enticed to begin staking for the first time.
“I think we will see more people stake,” he said. “Of course we will see people trying to withdraw, maybe selling some ETH, but we'll also see more people trying to join ETH staking, especially from the institution side, because it's just a little bit more certainty on their side.”
Zhao also said that the profiles of the existing stakers, who before Shapella were already willing to tie up their ETH indefinitely to earn rewards while supporting the blockchain, mean they will get right back in once the mechanism is confirmed.
“If I have Ethereum staked and I have some rewards locked in that I can't get, I will just try to get out and confirm this, and then maybe I will just restake some of those ETHs,” he said. “A lot of the early participants knew they would lock their ETHs for a year or two without being able to withdraw.”
“They will test out the withdrawal mechanism, but I do think they will try to get back in again, because they actually have high confidence in the ecosystem.”
Zhao’s thesis appears to have played out as expected, as twitter user Danko8383 pointed to short-term selling volume quickly being overwhelmed by buyers following the upgrade.
Can we all be bullish again?$ETH #Shangai #ShapellaUpgrade #LSDSummer pic.twitter.com/1Urit0QSlu
— 0xDanko.eth (@Danko8383) April 13, 2023
On-chain research firm Glassnode issued a report yesterday which also supported the idea that Shapella would be more likely to put upward pressure on ETH in the medium term as more market participants begin staking than it would be to cause a sharp selloff after the upgrade.
Glassnode anticipated that only about 100,000 Ether out of the total accumulated rewards would be withdrawn and sold. “Furthermore, we expect to see twice as many validators exiting, but only a limited amount of stake will be released per day. We believe only a fraction of that amount, around 70k ETH ($133M), will actually become liquid.”
The firm also noted that even if the maximum amount of rewards and staked Ether were withdrawn and sold, the sell-side volume would fall within range of the average weekly exchange inflow volume. “Therefore, we conclude that even the most extreme case will have an acceptable impact on the price of ETH,” the authors wrote.
“Based on our analysis, the impact on the Ethereum economy is expected to be a lot less dramatic than many have painted it to be,” Glassnode said. “It is arguably more likely that the technical delivery of the upgrade will bolster a growing staking industry, which seeks to better serve holders of Ether over the long-term.”
