According to the crypto analytics platform CryptoQuant, the profit and loss of staked Ethereum (ETH) suggest that there will be less selling pressure when the staked ETH tokens are released in the Shanghai upgrade. Concerns have been raised that unlocking staked ETH will cause a flood of tokens on the market, resulting in intense selling pressure.
ETH could resist selling pressure ahead of the upgrade
While the release of Ethereum’s tokens with the Shanghai upgrade is seen as a bearish event, new information suggests this may not be the case. Given that Ethereum staked in pools such as Lido is at unrealized losses, it is probable that despite token unlock, ETH holders will resist selling their holdings.
The Ethereum Shanghai upgrade is one of the most anticipated upgrades in the community, as validators will be able to unlock their staked ETH tokens for the first time since the launch of the staking contract.
According to data from CryptoQuant, 60% of ETH staked is in the red. This equates to 10.3 million ETH tokens with unrealized losses. When token holders are sitting on unrealized profits, the selling pressure on that asset typically increases.
Selling pressure is generally high when investors have the potential for extremely high profits. When many assets are unstaked simultaneously, it is common for some investors to want to cash out their profits, creating selling pressure.
According to CryptoQuant, high selling pressure is not expected because Ethereum investors have little profit potential. Because there is little selling pressure, the price of Ethereum is unlikely to fall — token prices fall when selling pressure increases.
The Shanghai Upgrade
Early in January, Ethereum developers reached a consensus that the Shanghai upgrade would take place in March 2023. Unlocking ETH staked by validators is the only major code change in the Shanghai upgrade.
Developers deemed unstaking their top priority and omitted a group of Ethereum Improvement Proposals (EIPs) known as EVM Object Format (EOF) from the Shanghai upgrade. However, the EOF may be included in a future upgrade, but the developers have not yet decided.
Uncertainty regarding the unlocking period of staked ETH induced considerable unease among investors, who began questioning the network’s future viability. The beginning of withdrawals is anticipated to provide ETH validators with long-awaited relief.
Here is a probable outcome
Since the opposite is true for staked ETH tokens, the typical expectation is that unstaked Ethereum would remain off exchanges, and holders would transfer it to liquid staking pools rather than incurring losses. Therefore, the fear of ETH flooding the market and increasing the selling pressure on alternative cryptocurrencies may be irrational.
In addition, the current Ethereum price is 66.56% below its all-time high of $4,878.26. The all-time high for ETH occurred on November 10, 2021. After unstaking Ethereum tokens, holders are likely to restake or resist selling.
Shanghai’s upgrade effect on ETH’s price
The primary factors on which CryptoQuant bases its analysis are the profit quotient of all staked ETH and the ROI status of the largest staking pool’s depositors. The analysis platform explained that both types of speculators are in the red and have no incentive to sell their ETH holdings under current market conditions.
The analysts assert that the investors’ concerns that the improvement will cause prices to plummet by flooding the market with ETH are unfounded. According to them, the volume of ETH outflows will be less significant than many analysts predict.
The Shanghai tech upgrade, scheduled for April, is the next major development in the crypto industry since last year’s Merge. It will allow investors to unlock and withdraw ETH tokens from staking for the first time since staking began on Ethereum’s proof-of-stake Beacon Chain in December 2020.
One crypto analyst stated that many market observers are unaware of how severely Ethereum’s withdrawal system restricts the amount of ETH that can be withdrawn at once.
The Shanghai upgrade to Ethereum will implement a two-tier withdrawal system. In general, partial withdrawals for amounts greater than 32 ETH will be processed immediately, but initially, analysts anticipate they will be distributed within three days due to the queue. Complete withdrawals, which correspond to the minimum staking amount of 32 ETH, will take longer and be released in stages.