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Talking Ethereum

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Sentiment in the cryptocurrency market remains mixed, with major projects moving in a sideways trend. Investors are concerned that Ethereum’s correction after the Shapella upgrade will result in more sell-offs.

What after the Shapella Upgrade?

  • Since December 2020, investors have been able to deposit their ETH on the Ethereum Beacon chain and receive blockchain rewards and profits. However, they couldn’t withdraw those funds until the recent upgrade. So far, the declines after the Shapella are relatively small;
  • Before the update, all staked ETH was worth nearly $32 billion (about 15% of supply). According to K33 Research, even with small withdrawals, about $2.4 billion in ETH could hit the market as investors will want to withdraw some funds from the Beacon chain. With crypto market liquidity drying up, this could trigger a deeper correction;
  • On the other hand, Bernstein Fund analysts pointed out that of the 18 million ETH staked, nearly 70% were locked into liquidity protocols, allowing investors to de facto trade funds through decentralized Lido-type protocols, which will take off much of the downward pressure. 
  • According to analysts, the 30% of investors who deposited ETH in the Beacon chain without using liquidity protocols are likely to have the highest level of conviction and will not be willing to sell. It is also worth noting that the seamless ability to deposit and withdraw ETH may encourage more investors to staking and drive capital flowing into the chain;
  • Passive ETH returns of 5 or 6% per year are no longer as attractive compared to the 0 interest rate period, when investors could not count on comparable yields from regulated fixed income assets. In addition, staking is to some extent subject to risks associated with crypto market regulation. Rewards for ETH staking will decline as the number of stakers increases.

News

  • According to the Block ‘open interest’ report, the ETH options market (call options vs. put options) before the update showed the highest level since May signaling possible downward pressure
  • The U.S. Treasury Department has indicated that the decentralized asset market poses a threat to national security.
  • Divly revealed a report according to which only 1.62% of US cryptocurrency holders paid tax on their investments. The report is disputed by tax law specialists;
  • According to Bloomberg, Singaupur’s central bank is working to unify cryptocurrency-friendly regulations 
  • According to a survey by CoinGecko and Blockchain Research, 75% of cryptocurrency investors hold NFTs

Ethereum chart, H4 interval. Looking at the chart, we can see that the price reached before the Shapell update was roughly similar to the peak of the price rally before the Ethereum Merge. If the declines accelerate the key for the price could be the demand reaction around $1700 zone, where we can see SMA200 (red line), 23.6 Fibonacci retracement of the upward wave started last June and previous important price reactions. Source: xStation5

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