What Happened to the Cryptocurrency Market One Week Post-Shanghai Upgrade
On April 12 (UTC), the Ethereum network underwent a significant upgrade known as the Shanghai Upgrade, or Shapella Upgrade. This Upgrade included several important changes to the network, including the lowering of gas fees and the ability to withdraw ETH for node validators. The Upgrade is thought to have come out in a sensitive time as the price of ETH, as well as of other cryptocurrencies, had been fluctuating greatly. What impact did the Shanghai Upgrade have on the market? Let's find out.
Unexpected Surge in Gas Fees
The Shapella Upgrade aims to solve two things: decreasing gas fees and allowing the withdrawal of ETH. Yet, the former has not necessarily been realized. In fact, transaction fees on the Ethereum network have been on the rise since the Upgrade, reaching a 10-month high of 49.1 gwei.
Source: Glassnode
It is essential to mention that the surge in gas fees is not directly due to the Shapella Upgrade, but rather to bots spending millions to front-run memecoin buyers. While PEPE leads the recent memecoin frenzy and is the first one to start the gas spike on Ethereum, newer coins like TROLL and APED have replaced it as the top gas-burning altcoins.
First Few Days of ETH Withdrawals
Since the Shanghai Upgrade, according to recent data from 21Shares on Dune, approximately 1.7 million ETH, equivalent to approximately $3 billion, has been withdrawn from various sources. Of this amount, 54.9% can be attributed to staking rewards and partial withdrawals, while 45.1% is from full withdrawals.
Source: Dune
Among all entities, Kraken has witnessed the largest number of validator exits and ETH withdrawals, with over 15,000 validators having fully exited and nearly 1.1 million ETH outflow in both partial and full withdrawals. That is indeed a large number of unstaked ETH tokens, but it is lower than anticipated. Furthermore, the amount of new ETH being staked is surpassing the withdrawals, leading to additional buying pressure to counteract the withdrawn ETH. These past few days following the Upgrade have seen a consistent increase in the daily staking of ETH, with an average of over 100,000 ETH being staked per day.
Influx of ETH Deposits in Exchanges
Data from CryptoQuant reveals that cryptocurrency exchanges experienced a spike of 179,500 ETH net inflow, valued at approximately $375 million, during the four days following Ethereum's Shanghai Upgrade. The data also shows that within the period between April 13 to April 16, traders deposited 1,101,079 ETH to exchanges, while withdrawing only 921,579 tokens, resulting in the largest net inflow in a month over a four-day period.
Messari's data also shows a significant influx of ETH deposits and a slump in ETH withdrawals into crypto exchanges following the Upgrade, leading to a net increase in ETH supply on exchanges.
Source: Messari
Even though increased net deposits on exchanges often signal an impending sell-off and subsequent price decline, the outlook for Ethereum appears to be positive.
Overall Bullish Sentiment
Following the successful implementation of the Shanghai Upgrade on Ethereum, the cryptocurrency market experienced an upward trend despite concerns of significant sell pressure after millions of staked ETH were to be withdrawn. The spot prices of ETH increased by 11%, surpassing the $2,000 mark, contrary to expectations of a sell-off, while BTC also soared past $30,000 for the first time since June 2022. Despite ETH’s rally, the Coinbase ETH-USD pair recorded more sell orders than buy orders, indicating that some traders may be liquidating their ETH holdings for USD possibly after staking them with the exchange.
The trend in derivatives markets suggests a bullish sentiment, with ETH option volumes on the largest options market Deribit exceeding $1 billion. Rocketpool (RPL), the native token of a liquid staking platform, has dramatically outperformed not only BTC and ETH, but also its closest rival and market leader of liquid staking, Lido (LDO), following the Shapella Upgrade.
Notably, since the Upgrade, the latest data from Kaiko reveals that the correlation between Bitcoin (BTC) and Ethereum (ETH) has reached its lowest point since January 2023, indicating that investors are potentially starting to view them as distinct and separate assets with unique characteristics and uses.
After April 20, the crypto markets have recently been on a slight downward trend due to concerns about inflation and recession. Nonetheless, as aforementioned, daily staking of ETH continues to rise with an average of more than 100,000 ETH staked per day, which indicates a growing confidence in the long-term potential of the Ethereum network.
What's Next?
Following the Merge, Ethereum has been facing increased regulatory scrutiny. The US Securities and Exchange Commission has expressed concerns about some platforms that provide yields from staking cryptocurrencies, deeming them illegal securities offerings. Due to the Shapella Upgrade, which allows the unlocking of staked ETH, Ethereum may face more intensified inspection from governments.
Also, later this year, another big upgrade called Cancun is scheduled to happen to the Ethereum network. This upgrade promises significantly lower fee, much faster transaction speed, and better scalability through the implementation of sharding. The exact date for the Cancun Upgrade has not been announced but the community is looking forward to it.
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