ETH price below $1,900 as data points to $300M sell-off after Shanghai

The biggest Ethereum news in 2023 is just about to hit as the cryptocurrency welcomes its highly anticipated Shanghai upgrade today, 12 April 2023.

As it happens, the market is unsure of just how much of an impact enabling of withdrawals of staked ETH will have on the price of Ether. However, the latest simulation by on-chain analytics firm Glassnode points to a potential sell-off of up to $300 million after the upgrade.

The platform shared the insights in a report published late Tuesday as the countdown to Shanghai hit under 24 hours.

Ethereum price and Shanghai: $300 million worth of selling pressure

Per Glassnode, selling pressure on Ethereum will be due to huge volumes of accumulated staking pool rewards being cashed out.

“After examining the different staking cohorts and their motivations for selling their unstaked ETH, we estimate a total of 170k ETH intended to be sold after the Shanghai upgrade.”

All staked ETH has an average deposit price of $2,136, giving depositors -13% in unrealized losses when measured against Ethereum’s current spot price. However, realized price for entire ETH supply stands at $1,403 – meaning there’s unrealized profit of 36% across the network.

Definitely expect some selling, and on-chain data suggests this will happen.

According to Glassnode, about 100,000 ETH, or roughly $190 million will be sold after the withdrawals kick in. However, only 70,000 ETH worth about $133 million will be cashed out, the researchers added.

“We project that only 100k ETH ($190M) of the total accumulated rewards will be withdrawn and sold. Furthermore, we expect to see twice as many validators exiting, but only a limited amount of stake will be released per day. We believe only a fraction of that amount, around 70k ETH ($133M), will actually become liquid.”

Ethereum price and Shanghai: Expert on expected impact

An estimate of the total the amount of staked ETH validators are likely to immediately withdraw  after Shanghai include value accrued for 1,229 validators that have signaled the intention to exit. Another 214 slashed validators will also exit involuntarily, on-chain data shows.

In this case, 46,176 ETH worth about $85.7 million could be sold immediately after the upgrade activates.

Despite the stated sell-off pressure, Glassnode says unstaking the maximum amount of ETH rewards will likely have “an acceptable impact on the price.” Also notable is that all the staked Ether cannot be withdrawn all at once, as Glassnode pointed out in its report, with this down to Ethereum’s proof-of-stake exit queue.

Katie Evans, a DeFi expert at Swarm, said in comments shared with Invezz that although the Shanghai upgrade may see “some instability in the ether price,”, the overall outlook is that this is unlikely to flip investor sentiment in a big way.

Noting that the investor mood around crypto is “increasingly buoyant“, Evans added. 

“While it’s true that a considerable amount of locked ETH will now likely be withdrawn, the offer of yield still stands for the market and remains a compelling option for investors looking to diversify their income streams. Staking ETH could even become a more attractive investment opportunity now that tokens can be withdrawn from validator nodes instead of being locked up indefinitely.”

On what happens in the immediate aftermath of the upgrade, the analyst noted:

“We’ll likely see some volatility over the next few days and weeks as the market adjusts to the new functions that allow for withdrawals, but this will pale in comparison to broader market movements that remain sensitive to macroeconomic news.”