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Shapella | The Bullish Unlock
The Blockchain Sector 2023-04-14
Approaching midnight on April 12th we started to see the first withdrawals from ETH staking after the Shapella update rolled out on the Ethereum network.
$37.5 billion dollars worth of staked ETH is now available to withdraw. This is ETH that was staked on the beacon chain to earn staking rewards over the last couple of years.
An unlock of that size and magnitude should mean a flood of ETH to the market causing a price drop, right?
The markets say no, since the update went through Ethereum has made new yearly highs and is now trading at $2100 USD.
So what happened and why don’t the laws of supply and demand play out in this scenario?
ETH is staked by long term holders to accumulate more ETH. They don’t have the same costs and overheads that miners do meaning they aren’t forced sellers. Given the current market conditions there aren’t many participants that are rushing to sell their digital asset holdings, hence why the markets have been grinding up this year.
The most common method for staking is the use of liquid staking tokens which were already tradeable on decentralized exchanges.
$12B was staked on Lido Finance’s stETH product alone. Anyone that held that token (including myself) was able to trade it and exit the position long before the Shapella update went through. The update has made little difference to the vast majority of Ethereum stakers who are looking for long term returns.
The timing of the update was beneficial as well. If Ethereum was making new all time highs and the markets were getting frothy then there may have been more participants willing to withdraw and take profits.
The other side of the argument is that there will be a non-zero amount of stakers who are queued to withdraw their ETH who wish to sell for stablecoins which could cause a longer term underperformance relative to Bitcoin. For some time Ethereum has produced the best risk to reward in the industry but if that changes then the price movement could be exasperated as more investors switch to Bitcoin or alternative assets.
So far however this doesn’t seem to be playing out as ETH/BTC has been up only since the update.
In my biased opinion I think there’s a good chance Ethereum will make new highs against the dollar and against Bitcoin in the next bull market. The markets are looking strong as well, many digital assets are up nearly 2x since the lows following the collapse of FTX in November.
The 0.1 BTC level will be a big achievement and then all focus will turn to the flippening at ~0.14 BTC. This is the level where Ethereum would become the most valuable cryptocurrency by market cap.
My thesis for why the flippening is likely at some point is due to the utility which Ethereum’s virtual machine delivers. By having an application layer that can run 3rd party code (Bitcoin doesn’t have this), it enables so much more to developers and users. NFT’s, DeFi, Stablecoins, all of these products are built using smart contracts that run on the Ethereum virtual machine.
As Ethereum scales that utility is only going to grow and new use cases will emerge that aren’t possible on the current infrastructure.
Congratulations and thank you to the developers for rolling out another successful update
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