Ethereum’s Shanghai Upgrade Brings Exciting Changes for ETH Holders
Ethereum’s highly anticipated Shanghai upgrade is set to bring some major changes to the world’s second-largest cryptocurrency. One of the most notable changes is that individuals who have staked their ETH as part of the network’s security mechanism will now be able to withdraw their holdings. This is a significant development for ETH holders, but will it create huge sell pressure on the cryptocurrency? The answer is likely no.
After the hard fork, users who have locked a minimum of 32 ETH to secure an APY staking reward of 4-5% will be able to withdraw a portion of their stake immediately. However, those who wish to withdraw their entire stake will need to wait anywhere from one to 36 days, which dampens the potential sell pressure. Furthermore, only 16% of ETH stakers are in profit, which means that most of them are unlikely to sell their holdings anytime soon.
For rational investors, selling ETH now would likely make little sense. ETH is arguably one of the world’s premier risk assets, and the investor profile for ETH holders leans towards rationality and a long-term outlook. Moreover, Ethereum is a blockchain that sells block space to apps, and the more apps and users there are, the more demand there is for ETH. This means that adoption can increase the value of the network exponentially.
The supply side of the trade relies on independent actors who run network nodes and receive ETH as compensation. However, thanks to a novel burn mechanism that destroys a small amount of ETH per transaction, the supply of ETH is actually shrinking despite token issuance.
Volatility should be ironed out slowly as the effects of network adoption take place. The more people who join the Ethereum network, the more the value of ETH increases, which leads to more adoption. As the market cap increases, it will take larger and larger market movements to rock the boat, reducing the large deviations in the price.
The upcoming Shanghai upgrade will be followed by a more complex upgrade that will reduce fees on the Ethereum network, making it faster and even more user-friendly. Despite the bear market, transactions on Ethereum are still maintaining a solid uptrend thanks to innovations like NFTs and decentralized finance.
Regulatory uncertainty has been a challenge for the crypto industry, but even as the U.S. puts a squeeze on crypto, Dubai, Hong Kong, and the U.K. are already preparing to scoop up exiled crypto companies. And even if regulators shoehorn ETH into the antiquated category of security, it may not matter. Anyone could buy securities in minutes using an app on a phone.
The Shanghai upgrade is an exciting development for ETH holders and the Ethereum network as a whole. With the potential for increased adoption and a shrinking supply, the value of ETH may continue to rise in the long-term. Investors may want to keep a close eye on Ethereum in the coming months to see how the network evolves and how the market responds to these changes.
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