Ethereum Shanghai

A Massive Ethereum Upgrade Just Freed Up $34 Billion of Crypto that was Previously Locked

3 min read

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In the early hours of this morning (AEDT), Ethereum’s long-awaited Shanghai upgrade was implemented without a hitch, officially allowing those who staked their Ether (ETH) on the Ethereum network to withdraw it.

At the time of writing, there’s a staggering 18 million Ether staked on the network, according to data from Etherscan. This sum of ETH is worth approximately US$34.5 billion (AU$51.4 billion) and amounts to nearly 15% of the total circulating supply of Ether in existence.

With the ability to withdraw staked funds now fully on the table for all Ethereum investors and validators, some have shared concerns holders may soon rush to sell their freshly unstaked ETH in an attempt to score some profit. When people rush en masse to sell their holdings, it can wreak havoc on prices.

At the time of writing, the price of Ether — which is the native token of the Ethereum network — has grown almost 60% since the start of this year. ETH is currently changing hands for US$1,913 (AU$2,848) apiece, up a little more than 2% in the last 24 hours. The fact that the price of ETH has held steady is promising for crypto investors as it shows that conviction amongst ETH stakers remains high.

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How bad could Ethereum withdrawals get?

According to a recent report, penned by the researchers at crypto intelligence firm Glassnode, less than 1% of the total unlock — approximately 170,000 ETH — stands to be released over the first week. Still, of the newly unlocked Ether approximately 70,000 ETH (US$134 million) will soon be pulled as validators exit the Ethereum network, taking their formerly-staked Ether along with them.

The report adds that there are precisely 253 depositors (which are private individuals or entities that send 32 ETH to the Ethereum network to become a validator) waiting to exit the network for a variety of reasons. Glassnode analysts were careful to not that these “withdrawals are most likely related to a change in their technical setup, rather than exiting their position.”

The remaining 100,000 ETH expected to hit the market, is predicted to come from users withdrawing their staking rewards to sell directly on the crypto market itself. Glassnode analysts added that they expect just US$133 million worth of ETH to actually change hands in the form of selling following the Shanghai upgrade.

In short, it looks as though a major ETH dump isn’t on the cards anytime soon.

Similarly, analysts from the on-chain data provider CryptoQuant aren’t expecting a stampede of ETH sales either, at least that’s according to a report the firm published in February.

“We argue that there would be low selling pressure for Ether from staking withdrawals after the Shanghai upgrade,” analysts at CryptoQuant wrote. It’s also worth noting here that the majority of investors and validators with staked Ether were still technically holding a loss compared to the price of when it was staked. For context, Ether reached its all time high of US$4,878 on November 10, 2021.

“Typically, selling pressure emerges when market participants are sitting on extreme profits, which is not the case right now for the Ether that has been staked,” CryptoQuant said. Additionally, the report notes that all of the currently staked Ether cannot be withdrawn all in one go and rough estimates claim that it could take anywhere up to an entire year for the total value of the ETH to be withdrawn.

Shanghai Upgrade pushes Ethereum in the right direction

In emailed comments to The Chainsaw, Managing Director of Kraken Australia, Jonathon Miller described the recent upgrade as “one of the most significant moments” in the history of blockchain technology.

“The world’s second largest by value – and arguably largest, by number of users – blockchain, Ethereum, will momentarily undergo yet another major planned hard fork to complete the transition from Proof of Work to Proof of Stake consensus mechanism,” Miller said.

Noting the possibility of potential withdrawals, Miller explained that the upgrade was largely bullish for the Ethereum network in the long run.

“Whilst this unlocking event may create conditions for an exodus from the staking protocol, the ability to freely stake and unstake, could equally attract many ETH holders who to this point had not been able to contemplate staking their assets due to the uncertain timeframe for the upgrade,” Miller said.

Overall, it is the consensus view that the Shanghai upgrade is easily the most important upgrade for Ethereum since The Merge in September of last year. With the ability for investors to unstake their ETH at any time, the Ethereum network takes yet another step in the right direction and looks to attract further reason for investment from retail and institutional investors alike.