The Ethereum Shanghai Upgrade, Explained
Most blockchain upgrades have an impact on price action. The Ethereum Shanghai upgrade will be no different. The supply of ether on exchanges has already begun to decrease as investors opt to move their assets into self-custody.
The last Ethereum upgrade created a good amount of volatility in the market, which traders took advantage of. ETH price surged from around $1,000 in July 2022 to over $2,000 in August and reached around $1,800 at the time of the merger. With a sharp drop in the exchange supply of Ether, traders could see another surge in price that would lead to a Shanghai upgrade.
However, short-term traders may want to note the decline in Ether’s price since the merger is extended to 2022. This upgrade couldn’t be much different. The other factor to keep in mind is that Ethereum users who haven’t been able to withdraw their Ether for over two years will have the flexibility to do so right after the Shanghai upgrade.
With more than 16.4 million ETH at stake, if some of it hits the market, it could increase the supply of Ether and push prices down just after the Shanghai upgrade is complete. This relationship between supply and demand is a fundamental principle of economics and a key factor in determining the price of any asset, including cryptocurrencies, stocks, bonds, and commodities.
It is also worth noting that, although there exists downside risk to the price action following the Shanghai update due to stake withdrawals, ETH withdrawals will only be available in small portions. For example, traders who want to withdraw their Ether after the upgrade will be able to do so in stages over time.
This can reduce the downside risk of Ether prices. But the fear of increasing supply is something that could affect the market sentiment in the short term.