What is the Ethereum Shanghai Upgrade?


Key Takeaways

  • The planned Ethereum Shanghai upgrade is scheduled to take place on April 12th
  • This is the first time users will be able to withdraw their ETH
  • Currently, 17.7 million ETH is locked up, making up 15% of the total supply
  • Some ETH has been held since December 2020, when it was trading around $400

The Ethereum network is set for its biggest event of the year, the Shanghai upgrade. But what does this mean? And when is it happening?

The when is not too difficult to answer. After much anticipation, the upgrade will be implemented on Wednesday (April 12th).

As for what it is, the most significant development is that staked ETH will be able to be sold for the first time. Since the Merge upgrade was completed in September 2022, Ethereum has been using a proof-of-stake consensus protocol. However, until now, ETH has been locked up, meaning investors were unable to access it. With the Shanghai upgrade, this restriction is lifted.

The Merge upgrade was initially planned for a much earlier date, but was delayed until September. Despite this, stakers had already been locking up their ETH in the staking contract since November 2020, when ETH was trading below $400.

How much ETH will be released?

By the time the Merge was completed, the amount of ETH locked up had grown to 17.7 million, making up 15% of the total supply. Since then, this amount has remained unchanged.

Though the amount of ETH has been locked up for a long time, some investors have been able to benefit from liquid staking derivatives. These are tokens that are redeemable for ETH once the ETH is unlocked. As a result, investors have been able to trade these tokens close to 1:1 with ETH.

Will there be sale pressure on ETH?

The presence of these derivatives means that the impact of the event may not be felt as heavily as expected. However, it still remains true that ETH will be easier to sell than before, and it is possible that some investors may choose to withdraw and sell their ETH directly.

Keeping in mind that this event was not unexpected, it is unlikely that any significant selling pressure will be seen in either direction. Of course, irrationality is not entirely absent from crypto markets, so some movement may occur.

Macro environment will hold the key

The Shanghai upgrade is a major milestone for Ethereum, but when looking at the price action, the macro environment will be the determining factor. This will depend largely on the future of interest rates and sentiment in financial markets.

This year has already seen a major shift in expectations of future interest rates, which has contributed to the 58% rise in ETH prices since January. Nevertheless, the short-term price is difficult to predict, and the Shanghai upgrade may not have a major impact on the price.

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