Ethereum finally completed another step for it to be a fully Proof of Stake chain. Shanghai upgrade — which enables ETH beacon chain withdrawal — is life today. Congrats teams! Congrats Vitalik and everyone else who worked hard to make this happen. Must be a great deal of technological undertaking.
But we plebs care more about something else (sorry!). The more pressing question is, is this a bullish or bearish event?
I’ve compiled a list of considerations.
Throwback to the merge
The merge was disappointingly a sell-the-news event. Even when there was nothing wrong about the Merge that particularly caused worries, like a technical error or something.
Ahead of the merge, Ethereal was slaying. It went from the $800 bottom to $1600 as the merge got close. It was the most anticipated event.
But as soon as the merge is live when you saw that Panda on the console, ETH almost immediately tumbled. That merge event was a total local top before we’re heading toward another bottom that was caused by the FTX collapse in November.
This article was written when Shanghai was already live, and I’m reporting from the street that the situation is pretty calm.
Calm in a way that ETH price is not immediately dumping — what people moat scared of because 2 years 'imprisoned' ETH would soon flood the market.
(ETH withdrawal takes time. There are queues and stuff, perhaps that’s why. It could be that price action is merely lagging.)
It was also calm in a way the price was not racing to the top. ETH price did increase, but we have BTC price movement in comparison now, and ETH is disappointing. It hasn’t managed to record a new high compared to BTC which passed $30k a couple of days ago.
(The cartel is not particularly fond of Ethereum?)
Do people really withdraw?
Rumor has it—especially spewed by Bitcoin Maxi—that Ethereum will suffer a lot of withdrawal and subsequently, sell pressure once Shanghai goes live.
Now that D-day is here, let’s see if that rumor has any substance or weight.
The people on Nansen made an analytic dashboard showing the ins and outs of Ethereum staking activity (whoops, llamas of DeFillama for once actually got front-run.)
So many numbers there, but upon first glance we can immediately see on the bar chart. People are actually withdrawing.
Scroll, scroll, and we can see that the largest withdrawer is Huobi.
My assumption about this Huobi once-staked-but-nows-not ETH belonged to Chinese customers, back when Huobi was still allowed to operate in China. There’s a good chance these ETH will be sold, as China is no longer crypto-friendly.
This argument is strengthened by the recent news about Hong Kong banning 'wild' DeFi (they require protocols to register for a license, which defeats the purpose of DeFi.)
Withdrawal takes time
However, since ETH withdrawal takes time, it’s possible that we don’t see the effect on prices immediately. With the current market sentiment, it could be even the selling can be absorbed well without much impact.
Potential sell pressure
Another interesting stat.
There is 700k ETH is waiting to be released. At the current price, those ETH is worth $1.349.273.693,01. A 1.3B potential sell pressure! That’s not a small amount indeed.
The bullish case of Ethereum staking withdrawal
Actually, against what BTC Maxi would believe, an ETH unlock could be a bullish event. Yes, the supply flood could be bullish. A bullish unlock like those ETH maxi loves to preach about.
Wait, what?
To understand that, we must understand the mechanism of Ethereum's monetary policy.
In a situation where DeFi is in a bearish period, investors would flock to the soundest investment available: Ethereum staking. That is why you have been seeing low APR on Ethereum staking in the past year. More people staked, so the yield pie got smaller.
Investor withdrawing their ETH from validators could mean the start of a bullish season. Finally, there are opportunities outside ETH staking that promise more yield. People instead utilize their ETH in another way (DeFi). One of them is exchanging it for alts leading to… alt szn, everybody! The DeFi economy previously cool gets hot again. DeFi gets busy again.
This inflation-deflation mechanism is automatic and implanted within the Ethereum design. (Read more about staking and liquid staking here.) Seeing it this way, those $1.3B potential sell pressure could be Ethereum’s own Quantitative Easing. Cheap money era has begun, folks!
Whether this is the case right now, we are yet to see. (This article was written a couple of hours after the upgrade.) But it’s useful to remember this theory as a consideration as we move to the next days. Watch the withdrawing wallets' activities.
Macro and general market sentiment
We shall include the general market sentiment. Because the ETH maxis are right, this Shanghai is a non-event (but not in a good way as they would hope.)
Prices recently are driven by something else, rather than the Ethereum event by itself. Largely ETH price has been tailing Bitcoin at a much slower pace. The pump typically lagged (happened after the BTC pump.) And the dump happens quite sharply due to a lack of liquidity.
As I have written before, this market is not to trust. Low liquidity drives prices dramatically) In the case of Ethereum, things are even hazier.
For example, the Binance recovery fund wallet here used to own 1B worth of ETH up until a few days ago, when the amount shrank to $500 million-ish. (If the cartel is Nance, surely they don’t love ETH that much.)
We are also approaching May, the Sell in May Then Go Away month. May typically is not a bullish month. In the past year that’s when the 3AC collapse was about to happen. The year before, the bull market of 2021, BTC went from $59k to $25k around May too.
Also, with all that local ATHs, there’s not much euphoria in the market. It is weirdly quiet.
A bit of shakiness in the realm of stocks has been starting this past week. And crypto tends to follow that on normal ‘no-wild-pump’ days.
Despite the mostly favorable US CPI data we got yesterday, the market didn’t seem to receive it positively. Inflation is at 5%, technically down from last year, but there’s some increase in some goods month to month.
In May, the FED will resume the FOMC meeting and is expected to raise the interest rate again.
The rest of April and May is to watch indeed.
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