Will Ethereum’s Shanghai Update Have a Significant Effect on ETH Selling Pressure?

Author: Sohrab Khawas

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    Ethereum is one step closer to its next, much anticipated Shanghai update. More than 17 million ETH have been staked on the Ethereum network since the Beacon Chain was introduced in 2020 and the network’s transition to a proof-of-stake (PoS) began. 

    Yet, users have not been able to withdraw these funds. This functionality will finally become available with the Shanghai upgrade, which is scheduled for March. There are two reasons why the selling pressure on Ether will continue to be unharmed even after the Shanghai upgrade. 

    What’s at stake and what’s not?

    According to a detailed analysis published by on-chain data platform CryptoQuant,  17.065 million ETH, or 14.12% of the supply, are now staked in the deposit contract. Investors are worried that there may be a significant drop in the price of Ethereum when the bulk of ETH becomes available for the first time in more than two years.

    The company has discovered two justifications for this: 60% of the staked ETH is lost, and the biggest staking pool’s depositors are also losing money. According to CryptoQuant, a majority of ETH stakeholders would have to sell their holdings, which is unlikely. 

    The worst-case scenario was also projected on Tuesday by Rich Falk-Wallce, CEO of the research firm Arcana and a former portfolio manager at Citadel. If the maximum outflow of validators occurs, Falk-Wallace estimates that it would take more than two years for the number of validators to drop from the present 536,000 to 100,000.

    Falk-Wallace predicts that if that scenario materializes, selling pressure might be in the range of 6% of daily volume (0.2% of total ETH) for the first three days, 1% over the following six months, and 0.3% over an 18-month time frame.

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