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Yerevan (CoinChapter.com) – Ethereum’s next major network upgrade, dubbed “Shanghai”, will go live in March 2023. The article below explains what it is and how it could affect the prices of Ethereum’s native token, Ether (ETH). 2023.
What is the Ethereum Shanghai Upgrade?
The Ethereum merge took place on September 15, 2022, moving the network from Proof-of-Work (PoW) to Proof-of-Stake (PoS). As a result, Ethereum ended mining and introduced staking, the process of locking up a certain amount of coins on the network in exchange for rewards.
Furthermore, to become a validator, a holder needs to have at least 32 ETH locked up.
Investors have been locking their 32 ETH in staking accounts since 2020. However, they could not withdraw their funds. That’s where the Ethereum Shanghai upgrade comes in. The upgrade will introduce the Ethereum Improvement Proposal EIP 4895 and add refund functionality.
It is important to underline that the Ethereum Shanghai upgrade is not part of the next phase of network development. More precisely, “merge” is the last step before developers start working on “surge”. Here is the Ethereum roadmap to reflect the Shanghai upgrade.
Ethereum Roadmap. Source: gsr.io
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How Could the Shanghai Upgrade Affect ETH Traders?
Most retail investors who are not validators on the Ethereum network will feel the impact on the ETH price. The upgrade would unlock a lot of liquidity, which could hurt the value of an asset.
In short, the fear is that allowing withdrawals could lead to a selloff given the adverse market conditions. However, some experts believe that an early exodus of investors is unlikely given his dedication to the project and patience over the years.
Binance Chain had one positive outlook, “Betting on ETH could be more attractive due to its improved liquidity, potentially increasing demand,” it added.
What do experts think?
US banking giant JP Morgan wrote in a recent report that enabling withdrawals would increase the blockchain’s staking ratio in the medium term.
Assuming that the staking ratio converges over time to the 60% average of other major PoS networks, validator numbers could grow from 0.5 million to 2.2 million and the yield would drop from the current 7.4% to around 5%.
said JPMorgan analyst Nikolaos Panigirtzoglu.
The report also states that a large portion of future staking growth is likely to go to liquid staking protocols such as Lido.
These protocols “enable liquidity for staking assets that would otherwise be locked up in staking contracts, which can be traded by providing equivalent amounts of derivative tokens in exchange for staking ether.”
READ ALSO: Ethereum Price Prediction: Can ETH Reach $2,000 in 2023?
“The price of ETH will explode,” said the CIO.
Alan Wojnowski, head of research at Staking Rewards, commented on the Ethereum Shanghai upgrade in a written note to Forbes. He stressed that “the queuing process and Lido’s significant withdrawal share will significantly reduce any selling pressure during the withdrawal process.”
Additionally, the expert pointed out that there is no possibility of the validator fleeing the withdrawal function. Despite predicting mass withdrawals, “an average of 20,800 Ether tokens continue to be halved per day,” voicing confidence in them.
Matt Haugan, chief investment officer at crypto index fund manager Bitwise Asset Management, agreed, expecting a 50% upside move for ETH.
Today, many investors who want to stake ETH and earn a yield are sitting on the sidelines. After all, most investment strategies cannot tolerate an indefinite lock-up. That’s why most investors stay out of the market. But once the indefinite lock-up is lifted, the percentage of investors willing to stake their ETH will explode.
Hogan said.
As of February 10, ETH was priced at $1,540 after three weeks of horizontal consolidation.
Ethereum token Ether (ETH) daily price action. Source: TradingView.com
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Frequently Asked Questions (FAQ) What is the Ethereum Shanghai Upgrade?
The Ethereum merge took place on September 15, 2022, moving the network from Proof-of-Work (PoW) to Proof-of-Stake (PoS). As a result, Ethereum ended mining and introduced staking, the process of locking up a certain amount of coins on the network in exchange for rewards.
How will the Shanghai upgrade affect you?
Most retail investors who are not validators on the Ethereum network will feel the impact on the ETH price. The upgrade will unlock a lot of liquidity, which can generally hurt the value of an asset.
When is the Ethereum Shanghai upgrade coming?
Ethereum’s Shanghai upgrade is a hard fork scheduled for March 2023. The upgrade will introduce Ethereum Improvement Proposal EIP – 4895 and add refund functionality.
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