Early Investing

Ethereum’s Price Action Is Tied to the Shanghai Upgrade

Ethereum’s Price Action Is Tied to the Shanghai Upgrade

Crypto Market Musings

Bitcoin is having a year. In the midst of a banking crisis and regulatory upheaval, bitcoin quietly posted a 72% gain in the first quarter of this year. That’s bitcoin’s most popular quarter since the first quarter of 2021, when bitcoin’s price went up 102%.

Bitcoin was also the top performing asset in the first quarter of 2023, easily beating the S&P 500’s 7% gain and the Nasdaq 100’s almost 21% jump. As of this writing, bitcoin is trading at $27,875.

Ethereum also outperformed the S&P 500 and Nasdaq 100. It jumped more than 50% in the first quarter. It’s trading at $1,850 as of this writing.

The crypto rally is largely driven by the banking crisis reminding investors about the need for sound money, the Federal Reserve indicating that rate hikes will slow, and the possibility that peak inflation is over.

In the short term, I believe bitcoin’s price will largely be dictated by macro issues — interest rates, inflation, wages, etc. But I expect ethereum’s short-term price will have little to do with macro issues. Instead, it will be driven by the Shanghai upgrade on April 12 (see below).

What Vin Is Thinking About

One of the things that makes crypto such an interesting investment is that it’s still a nascent industry and ecosystem. Innovation is happening at a rapid pace. And crypto technology is constantly being improved. 

That’s why when you choose a crypto investment, selecting a project with a great developer community is critical. The only way a crypto project is going to succeed in the long term is by constantly improving. And it can’t improve unless it has a solid team of developers devoted to making it better.

Since its inception, Ethereum developers have shown they’re some of the best in the business. Last year, Ethereum completed “the Merge,” which shifted Ethereum from a proof-of-work protocol to a proof-of-stake protocol. The goal behind the switch (best described as swapping out a jet engine mid-flight) was to make Ethereum faster, more efficient, and scalable.

Part of the reason for the switch to proof of stake was to give ETH holders the opportunity to stake or use their ETH to help secure the network and earn rewards. And people have been taking advantage of the opportunity. More than $33 billion worth of ETH has been staked so far. The current annual return on staked ETH right now is 4.4%. 

But even though staking was built into the Merge, withdrawing or cashing out stakes wasn’t. Next week’s Shanghai upgrade fixes that. Starting on April 12, people will be able to withdraw their staked ETH and claim their rewards. 

Part of Ethereum’s recent price surge can be attributed to excitement over the Shanghai upgrade. The ability to withdraw stakes should increase adoption and bring in more users. But there will also be selling pressure once withdrawals are turned on. Some people are going to want to cash in. But more importantly, regulatory pressure and bankruptcy are forcing the sale of a significant amount of ETH. According to CoinDesk, Celsius is expected to sell around $296 million worth of ETH as part of its bankruptcy proceeding. And Kraken is expected to sell more than $2 billion worth of staked ETH due to regulatory pressure. 

That’s a lot of ETH. But that amount of ETH can only be sold off in small increments. So it will take months for the process to unfold. And it won’t have an outsized impact on the markets. But it could temper some of the rapid price growth people are hoping for. 

That said, crypto is known for big moves, not small ones. Next week should be an interesting one for ETH holders. 

And Finally…

Someone at Apple appears to be a bitcoin fan. A copy of the bitcoin white paper has been hidden inside the macOS since 2017. Nobody knows why the file, a 184-kilobyte PDF, is there. But as far as Easter eggs go, this is an impressive one.

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