Bitcoin Outshining Ether as Shanghai Looms

While a sector-wide sell-off in digital assets on Wednesday took hold, participants have continued to deposit record amounts of ETH into the validator pool

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Source: Shutterstock / Wit Olszewski, modified by Blockworks

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Despite the world’s second-largest digital asset lagging bitcoin’s performance recently, developments across Ethereum’s ecosystem continue unabated while macro headwinds persist.

With the Shanghai-Capella upgrade slated for April 12, industry participants and investors are now bracing for the initial impact from validators seeking to withdraw and sell their locked-up ether (ETH).

ETH fell 4.7% Wednesday as part of a broader market sell-off following US Federal Reserve Chair Jerome Powell’s press briefing of the Fed’s latest interest rate hike and news of SEC enforcement actions against Justin Sun and Tron-affiliated groups and individuals. 

Ether remains about 46% higher on a year-to-date basis compared to bitcoin’s (BTC) 65% at $1,750 and $27,700 respectively.

Ether has seen its performance stumble behind bitcoin, which research firm BitOoda attributes in part to the “looming staking withdrawal effect,” according to its latest research note.

Bitcoin’s dominance, measuring its relative market share compared to other digital assets, rose to a nine-month high last week as fears over the global banking sector took hold.

But ether holders depositing their ETH to new validators or liquid staking pools is at all-time highs.

“Ethereum’s Shanghai upgrade has generated divided opinions on its bullish or bearish impact, and ETH lacks a strong presence in the financial collapse hedging narrative,” Xavier Ekkel, founder of DeFi trading platform prePO said.

The upgrade will induce short-term ETH volatility but “ultimately prove long-term bullish,” he said. “Once staking and unstaking activity becomes more predictable, which might happen sooner than we think, worries about the upgrade will likely dissipate.”

Total ETH staked edged slightly higher last week from 17.6 million ETH to 17.8 million ETH, data from Etherscan shows, while the fees garnered from annualized staking yields dropped by 1.3%, BitOoda said.

That comes as the total supply of ether has decreased for more than two months, which, squared with locked tokens, can lead to an increase in value if demand remains the same or increases.

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BitOoda also estimates roughly 5 million ETH, worth some $8.6 billion at current prices, could be sold off, over time, following withdrawals next month.

However, the exit queue for withdrawals has limitations in place to prevent the entire validator set from leaving, Blockworks previously reported, meaning the timeframe for those sales could be up to two years.

Other analysts, including Arcana’s CEO Rich Falk-Wallace, believe roughly 0.2% of ether’s total supply, roughly 245,000 ETH — worth some $427 million — would make its way to exchanges, leading to sell-side pressure over the first few days that withdrawals are enabled.

The impact on price is predicted to be minimal.


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