Ethereum Shanghai upgrade, explained

Most blockchain upgrades have an impact on price action. The Ethereum Shanghai upgrade would be no different. Ether supplies on exchanges have already started to plunge as investors choose to move their assets to self-custody.

The previous Ethereum upgrade created good volatility in the market, which traders tapped into. ETH prices skyrocketed from around $1,000 in July 2022 to over $2,000 in August and reached about $1,800 just around the time of the Merge. With exchange supplies of Ether plummeting fast, traders may see yet another spike in price leading to the Shanghai upgrade.

However, short-term traders might want to note the fall in Ether’s price since the Merge was pushed in 2022. This upgrade may not be too different. The other factor to keep in mind is that Ethereum users who haven’t been able to withdraw their staked Ether for over two years will have access to do so right after the Shanghai upgrade.

With over 16.4 million ETH staked, if some of that hits the market, it could increase the supply of Ether and bring prices down right after the Shanghai upgrade is complete. This relationship between supply and demand is a fundamental principle of economics and is a key factor in determining the price of any asset, including cryptocurrencies, stocks, bonds and commodities.

It’s also worth noting that, although downside risks for price action exist after the Shanghai update due to staking withdrawals, ETH withdrawals will only be available in small chunks. For instance, traders who want to withdraw their Ether after the upgrade will only be able to do so in stages over time. 

This might mitigate downside risks to Ether prices. But the fear of increased supply is something that could hurt market sentiment in the short term.

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