The upcoming Ethereum network upgrade is driving capital to ether (ETH) and staking-focused tokens. This comes as traders anticipate higher prices for these assets in the future.
Ether, the top performer among major tokens, rose 5% in the last 24 hours to more than $1,920 on Wednesday morning. According to CoinMarketCap data, this is the token’s highest price since August 2022.
Ethereum price surges above $1,900
According to CoinMarketCap data, the last time Ether was worth more than $1,900 was on August 16, 2022, during a crypto sell-off. Moreover, this occurred at a time when the United States Federal Reserve was raising the Federal Funds rate at an unprecedented rate in order to combat inflation. Analysts predict ETH will reach $2k within the week, backed up by market analysis.
The number of unsettled derivative contracts for ETH futures increased to $5.6 billion in the last 24 hours, with more than $23 billion worth of these products traded on cryptocurrency exchanges. The surge in ether trading comes ahead of Shapella, a portmanteau of Shanghai and Capella, two major Ethereum network upgrades scheduled for April 12.
As per Ethereum’s upgrade roadmap, EIP-4895 will be implemented during the Ethereum Shanghai hard fork. The upgrade will allow validators and stakers to withdraw staked ETH from the beacon chain. The upgrade is in addition to other EIPs aimed at increasing transaction speeds while lowering transaction costs.
In addition, the recent price increase could be the result of expectations that the Fed will ease up on quantitative tightening as rate hikes cause cracks in the global banking industry. Moreover, increased demand for ETH in staking is expected to become more flexible.
ETH/BTC, a trading pair comparing the price of ETH to BTC, has increased by nearly 3% in the past week, according to TradingView. Bitcoin has also recorded gains in recent days. Both factors may be contributing to Ether’s price increase, as indicated by the surge.
While Shanghai refers to the fork on the execution layer client side, Capella is the name of the upgrade on the consensus layer client side and will be implemented on April 12, shortly after Shanghai.
The execution layer contains all smart contracts and protocol rules, whereas the consensus layer guarantees that all network validators adhere to these rules. The ability to easily deposit and withdraw ether gives holders more confidence to stake, and those on the sidelines are now more likely to stake.
The Shanghai upgrade will allow the withdrawal of ether that has been staked (stETH). The Merge entailed the switch from a proof-of-stake (PoS) consensus mechanism to a proof-of-work (PoW) consensus mechanism.
What direction with ETH take with the Shanghai upgrade?
According to CoinMarketCap, the price of ETH dropped significantly following the execution of The Merge on September 15, 2022, losing roughly a quarter of its value in one week.
Even though some analysts and traders believe the unlocking of staked Ether will create sell pressure, it is currently unknown what will occur following the Shanghai and Capella updates.
Nonetheless, according to some analysts, the event could prove bullish for ether in the future, as staking and harvesting directly from the blockchain become more accessible to users. The last update puts the ETH fear and greed index at 63.
Until now, investors have relied on liquid staking platforms like Lido and Rocketpool, which issue the LDO and RPL tokens, to capture yields from staking ether on Ethereum nodes while freeing up capital for other purposes. These tokens can be used as collateral for loans or margin trading or to generate additional yield.
In 2023, liquid staking derivatives (LSD), a term for tokens issued by such platforms, have emerged as one of the most lucrative investment opportunities. The price of liquid staking tokens increased overnight as investors bet on the growth of decentralized staking products before Shapella.
The liquid staking sector increased by an average of 6%, according to CoinGecko data, while the overall crypto market capitalization increased by only 3%. LDO and RPL led this sector’s gains with increases of 5% each, while tokens with a smaller market capitalization, such as Stader’s SD, increased by 22%.
