Staked Ethereum will unlock in Ethereum Shanghai. Is this giant unlock a ticking time bomb for Ethereum? Will we see 18 Million ETH being dumped in the market or will trigger something completely inconceivable.
ETH to $10K, ETH flipping Bitcoin? I dont know. But I have a very IMPORTANT PROOF that will prove everyone wrong about effects of the unlock on ETH Price. Let’s dig in in Ethereum Shanghai.
Before we head into the real impact of Shanghai update to Ethereum and the proof I have been telling you about, lets briefly understand what is Shangahi Update first.
What is The Shanghai Update?
The end goal of Ethereum is still the same, to scale up. The end goal is to get to sharding as a method of scaling Ethereum’s Layer 1 transactions. That’s the long-term solution.
Sharding enables more transactions per block and faster block times. Data is stored in pieces across lots of nodes instead of every node storing all the data. Every node holding all the data is how Bitcoin works. It’s secure but its transaction times are slower because of it. Sharding enables scaling.
The Ethereum Shanghai Upgrade is happening in less than 17 hours ⏰
Here's a beginner-friendly video explaining everything you need to know about the upcoming upgrades.
Watch the full video: https://t.co/HlyJAHvKHZpic.twitter.com/EtpydsfoE1
— CoinGecko (@coingecko) April 12, 2023
To get to sharding, we had The Merge. That shifted ETH from Proof of Work to Proof of Stake. Now with validators, they can eventually get to the end goal of sharding. The next update to move towards this scaling goal is the Shanghai Update.
The most well-known part of this update is that people will be able to stake and unstake ETH at any time. Right now, their ETH is locked up and they cannot get to it. That’s why liquid staking protocols like Lido and Frax are so popular.
More About Ethereum’s Shangai Update
Currently, 15.6% or $34.6 million worth of ETH is locked in staking. I know you are probably thinking that once all this ETH is unlocked it will create lots of selling pressure. Finally, people can move their Ethereum that’s been stuck for, in some cases, over 2 years.
But we don’t think that will happen because of this Important Proof. ETH unstaking is not likely to cause a sharp, sudden dip. Why? According to Guilhem Chaumont, chief executive officer of crypto-financial service Flowdesk, the withdrawal queue only allows a limited set of requests per day. That is 115,200 requests per day.
Thus the unstaking system is designed to prevent massive withdrawals which will limit the number of ETH unlocking into the market. Also the little amount of unlock ETH wont be sold by holders immediately. Here is why.
More Than 50% Of These Eth Stakers Are Holding at a Loss
Thanks to the prolonged bear market and locked staking, many of these stakers have been in their ETH positions for well over a year. And that means they are holding at a loss. So many will likely continue holding.
• Psychological strength.
It’s no secret that, as happens many times, people bought and staked $ETH at higher prices during the past bull run.
This could be preparatory to avoid further selling pressure as they will probably hold until they reach the breakeven point. pic.twitter.com/UBX2HeAcKG
— ZERO IKA 🗡️ (@IamZeroIka) March 25, 2023
Staking Shows Belief. We say this often here. Staking equals belief. People don’t buy a coin and just let it sit there even to earn interest if they do not believe in the project. Staking is for believers. Many will be inclined to hold. Add to this that the only other real true blue chip in the industry, Bitcoin, doesn’t have a consistent income-earning mechanism like staking. So big investors, institutions, and whales will likely hold from here.
Not only do we not think the locked stakers will sell, we think it’s bullish for liquid staking providers. That means that:
Frax and Stakewise will benefit. Lido alone has more than 70% of the total but these 5 have 95% of the total liquid staked ETH. In fact, one of the best ways to play this is to buy some of these liquid staking platform coins. You could do it one of 2 ways. For example, we like Frax. You could buy the Frax Shares $FXS token OR buy their liquid staking token frxETH. The same applies to Lido, RocketPool, or infrastructure provider Ankr.
Liquid staking will continue and will grow from here. With block times between 10 and 15 seconds, if many people wanted to unstake and move the coins back to their wallets, they would clog up the network for days. Gas would go through the roof.
🧐 Interested in Liquid Staking?
With the #Shapella upgrade on Ethereum coming on April 12th, liquid staking is poised to become a trending topic again.
The Ultimate Liquid Staking Map provides a perfect resource for researching the vibrant #LST space 👇https://t.co/VqzRodqJDd
— DIA | Cross-Chain Oracles for Web3 (@DIAdata_org) April 8, 2023
Could that happen? Maybe. But I think this along with those holding at a loss wanting to hold on means most will not unstake right away. Do you own any liquid staking tokens? Which platforms do you prefer? Let us know in the comments.
How Will This Update Affect Ethereum’s Price?
Before we get to how the update will affect price, Ethereum could use some good news. On the 3rd, an MEV bot performed what’s called a sandwich attack. They substituted fake transactions for real ones and stole over $25 million in ETH.
Once again, it brings up security questions about Ethereum as a smart contract network. But back to price. We asked our technical analysis team this question and here is what they had to say:
“Ethereum’s all-time high from November 2021 is $4878. And although we’ve been close, the last time ETH was under $1000 for more than 1 day was on New Year’s Day 2021. So that’s more than 2 years ago. The bear market low was $995 for exactly 1 day on June 18th 2022. Since that bear market low, we’ve seen higher lows in the 1095-1110 range and another about ~1420.”
We are still more than 40% off the all-time high so we would have to see a big move to take out $4878 and move to an all-time high. A huge drop from here at $1800 to these lows could happen but is unlikely to happen from withdrawals alone.
But as mentioned earlier, being down this much from the highs might reduce selling pressure when stakers can finally start withdrawals. Most don’t want to sell at a loss so we expect them to continue holding and staking. And this is why we think the liquid staking providers will continue to grow.
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