The prices of major cryptocurrencies have been on the rise for the past few weeks, but as far as Ethereum’s price is concerned, alongside the general trend, the anticipation of the upcoming new fork could also have an impact.
The upcoming fork of Ethereum and ETH price predictions
In fact, a new update to the Ethereum protocol is expected in March, which will take place through a fork called Shanghai.
The curious thing is that the main new feature introduced by this update will finally be the ability to unlock ETH staked on the new Beacon Chain.
This in theory could cause a lot of ETH to suddenly be placed on the market, causing the supply to soar and the price to fall.
Despite this, the markets still seem to be optimistic about the impact of the fork on the price of ETH.
There are currently more than 16.1 million ETH locked in staking on Beacon Chain, representing more than 13% of all existing ETH. They will certainly not all be put on the market when they are unlocked, but even if only half are put on the market, the impact on prices could be significant.
16.1 million ETH at today’s prices corresponds to more than $26 billion, and given that in the past 24 hours the total volume of ETH trades on exchanges has been just over $9 billion, just half of those 16.1 million ETH could disrupt the market if they were to be placed on the market suddenly.
It is worth mentioning though, that hardly anyone who was at a loss right now might want to withdraw the staked ETH and sell them immediately.
ETH in staking
There were four particular times when more ETH were staked
The first was between January and February 2021, when nearly 3 million ETH were staked.
At that time, the price of ETH was in line with what it is now, or slightly lower, so it is hard to imagine that many of those 3 million ETH could be withdrawn and sold now, given that staking generates returns. It is plausible to imagine that those who were to do so would be earning very little, even though there are 2.2 million ETH that were staked before the ETH price reached $1,600.
The second moment was between April and July 2021, when another 2.7 million ETH were added on Beacon Chain. At that time, ETH prices were significantly higher than they are today, so it is safe to assume that those who would withdraw those ETH to sell them would do so at a loss.
The third moment occurred between March and June 2022, even though another 3.1 million were still staked between August 2021 and February 2022, although at a much slower rate.
In those four months of 2022, 3.3 million ETH were added on Beacon Chain when the price was substantially higher than it is now. But beginning in early June it dropped all the way below $900, so a small portion of those 3.3 million ETH were staked at a time when their market value was well below today’s.
The latest phase of large addition of ETH in staking is still ongoing, and began in September 2022. That is 3.4 million ETH put into staking when their market price was well below the current market price.
So in total there are more than 5 million ETH currently in staking that in theory at current prices could be unlocked and placed on the market to make a profit as soon as it is possible to do so.
Even though the prices at the time of the fork will be different than at present, this is still about $8 billion, or a volume similar to what is currently traded in a day on the ETH market.
Therefore, it is entirely possible, at least in theory, that the Shanghai fork could cause a significant increase in ETH selling pressure in the crypto markets.
Ethereum’s price trend
Despite this, Ethereum’s price continues to rise.
The climb began on 4 January, and so far it has virtually been steady with only three days of slight decline and three more days of stagnation.
The highest peak in these early weeks of 2023 was touched on 21 January, when it came close to $1,700.
As is often the case in crypto markets, it is possible that a large-scale “buy the rumors, sell the news” strategy is in effect in anticipation of the March fork.
In other words, it is possible that the buying pressure is increasing in anticipation of the event, and once it happens the selling pressure may increase instead. Moreover, it does not help either that the Shanghai fork could unlock large quantities of ETH that might also be placed on the market immediately or in the near term.
Something vaguely similar had happened around mid-September last year with the Merge, although there were no unlocked ETH then.
The widely announced Merge took place on 15 September, and from late August to 12 September the price of ETH went up 25% in the middle of the bear market.
But as early as 13 September, i.e. two days before the announced Merge, it began to fall, eventually returning ten days later even below the starting price of late August. However, a downward trend was underway throughout the crypto market at that time, so it is difficult to say that the post-Merge price drop was due only to the Merge itself.
In addition, it is worth adding that the uptrend in late August actually followed another uptrend that began a month and a half earlier, so indeed the pre-Merge uptrend lasted about two months, albeit with ups and downs. Since the Shanghai fork is expected in March, it is more than normal that an uptrend was triggered in January.
The possible rise in ETH staking
However, an important consideration should be added to this reasoning. As a matter of fact, right now the convenience of staking ETH without being able to withdraw them is not particularly high, even though they generate a yield.
Instead, when it becomes possible to unstake them, it cannot be ruled out that many of those who until now have been reluctant because of the impossibility of withdrawing them will decide to temporarily lock them on Beacon Chain.
However, it is not possible to estimate how much of this will happen, so the dynamic that follows the logic of “buy the rumors, sell the news” at this time seems the most plausible explanation.
This article has been originally published at: https://en.cryptonomist.ch/2023/01/24/ethereum-price-rises-fork/