Will ETH fall after the Shanghai update on April 12?

On April 12, the Shanghai update will be launched, after which validators will be allowed to unlock their staked ether and receive rewards for staking.

Short answer: the update is more likely to put pressure within the range of 1-4% on the price of ETH, so a strong effect is not expected.

Justification:

• Selling will happen in parts, as there are many whales among validators A large amount of ETH in staking is concentrated among very large holders (whales) and organizations, who know how to sell assets carefully without crashing the market. Therefore, there will not be a stampede effect of people competing to sell first, but rather more measured actions can be expected.

• Withdrawal speed Rewards can be withdrawn or the entire amount of staked funds, and both processes take time, at least a few days (partly due to the requirement to update validators’ account information after the update). With full fund withdrawal, there are security restrictions in the network; for example, currently, only 1,800 validators per day can withdraw funds, which corresponds to 57k ETH/day. Therefore, ETH will not flood the market immediately.

• Celsius and Kraken The SEC previously questioned the legality of Kraken’s ETH staking service, and intensive withdrawals can be expected from there. However, Kraken has not yet announced a date for when funds can be withdrawn from staking. Celsius, which has a large amount of ETH in staking, is also not in a hurry to pay off its debts.

• LIDO is not in a hurry to close its validators LIDO, the largest staking provider in the ETH network, will allow funds to be withdrawn only in May 2023.

• Glassnode report shows a high probability of a small amount of funds being withdrawn from staking Glassnode estimates the possible amount of withdrawn funds at 170,000 ETH (100k ETH for rewards). However, Glassnode estimates that only part of this volume will be converted into stablecoins.

• Currently, the average deposit price for all staked ETH is $2136, indicating an average unrealized loss of -13% at current spot prices. More than half of investors’ funds are currently unprofitable (76% of the loss is borne by whales). In other words, the current sell-off will be unprofitable for validators.

The worst-case scenario is a 8.7% drop in ETH price over the week. Three scenarios can be seen graphically here. There is no need to panic about the upcoming event. And if you used liquid staking, you always have the opportunity to significantly reduce your risks by selling some tokens. Or simply use futures for small hedging.