How the Ethereum Shanghai Upgrade Could Impact the Price of ETH

Ethereum will conclude its two-year transition to proof of stake this week with the launch of the Shanghai upgrade on April 12. The move will introduce a number of technical improvements to the network, but most Ethereum traders only care about one thing: staking withdrawals.

With more than 18 million ETH—worth roughly $34 billion—locked up on the Ethereum network set to finally become available to validators, investors are understandably uneasy about what this might mean for the price of the second-largest cryptocurrency by market cap.

Andrew Thurman, a data analyst at Nansen, told Decrypt that in his view price impact in the short-term, however, will be “a little bit more muted” than community expectations suggest.

Also known by its consensus name Capella, Shanghai ends the two-year lockup period on staked ETH and its corresponding rewards. If all goes well, Ethereum stakers will be able to begin sending withdrawal requests to the network immediately after Shanghai goes live—but that doesn’t mean users will receive the funds on day one. Because of the anticipated length of the withdrawal queue, holders may have to wait weeks to months to retrieve their assets.

“With many speculating whether this event will cause a massive sell-off in price, it’s important to realize that the withdrawal queue only allows a limited set of requests per day (115,200),”  Guilhem Chaumont, CEO and co-founder of Flowdesk, said in a statement shared with Decrypt. “So while there may be sustained downward pressure on the price, unstaking is not likely to cause a sharp, sudden dip.” 

Individual stakers, those who were able to pony up at least 32 ETH (worth approximately $60,000 at today’s prices) themselves, can expect to wait at least two to three days to have withdrawal requests processed, Ethereum developers previously explained to Decrypt. Those staking through pools and other service providers, such as Lido or crypto exchanges like Coinbase, may have to wait several weeks or even months to withdraw their funds.

And besides the wait times, others point out that the availability of liquid staking services such as Lido means that traders who have wanted the ability to trade staked ETH have been able to do so even before Shanghai.

“Most people have been able to sell [staked ETH] for quite some time, because the majority of ETH is being staked through platforms with liquid staking tokens, like Lido or Rocket Pool,” Jacob Cantele, head of product at Ethereum layer-2 Mantle, previously told Decrypt. “So I don't actually think [Shanghai] represents a major shift in the economics of Ethereum.”

Matthew Niemerg, co-founder of privacy-enhancing blockchain network Aleph Zero, concurs: “To be more direct, it's priced in,” he said.

“It is entirely possible that there will be more people willing to stake ETH (locking up liquidity and reducing the available supply) after the upgrade, as people will be more certain that they can safely unstake their ETH," said Niemerg.

Nansen’s Thurman believes that while the short-term price action may be lackluster, Shanghai may give Ethereum investors reason to be more bullish in the long term.

“It's gonna take a while for people to really understand what the dynamics are regarding whether or not this is a bullish or bearish action in the short to medium term,” he said. “I will say, though, that on a long enough time horizon, it's really difficult to come up with a thesis that isn't wildly bullish.”

Thurman argues that the reason for this is the enhanced business use-case for crypto custody. In recent years, major banks including JPMorgan Chase, Standard Chartered, and CACEIS have increasingly shown interest in cryptocurrency custody, a service which refers to the safekeeping and management of securities or financial assets on behalf of consumer clients.

“Custody is going to get much more competitive,” Thurman told Decrypt, “because suddenly you can custody ETH as a bank, or as one of these solutions, for low to no fees. I think that’s going to lead to a lot of locked up [ETH]. And of course, that's going to be great for the price in the long run,” he said.