The Ethereum Shapella Upgrade Occurred; Now What?

April saw the next big Ethereum update take place, and analysts are weighing in on what it can do for the world’s second largest digital currency by market cap (and the primary competitor to bitcoin) in the long run.

Ethereum Endures Its Second Major Upgrade in 7 Months

This is the second major upgrade to Ethereum in about seven months. The first took place in September and was known as the Merge. That upgrade moved Ethereum from a proof of work (PoW) to a proof of stake (PoS) module, thus allowing it to become greener and less energy intensive.

This new upgrade, called Shapella, will allow the withdrawals of staked ETH. Brian Fakhoury – a junior partner of venture firm Mechanism Capital – explained in a recent interview:

It’s hard to tell [the impact] in the short term as there will be a lot of reshuffling in the [ether] staked. These flows could be bearish or bullish for the [decentralized finance] ecosystem and the Ethereum network itself. In the long run, the Shanghai upgrade brings native [ether] yield to a truly free market, which I believe is a requirement for real growth. As the withdrawal queue clears out, liquid staking protocols will be able to compete on more even terms as outflows from worse to better opportunities can be acted upon by market participants.

While the Shapella upgrade is slated to assist the Ethereum network in the long term, there are likely to be short-term problems in that such a vast amount of staked ETH suddenly becoming available could lead to people selling their units as a means of making quick profits. This could ultimately affect the network for a little while and result in Ethereum price dips, though it’s not expected that this will last terribly long.

Constantin Guggi – CEO and co-founder of blockchain solutions provider Swisstronik – threw his two cents into the mix by saying:

The staked tokens unlock is significant, and it may cause temporary volatility on the market. Due to the ever-changing nature of the industry, including its regulatory aspect, some validators had legal and financial difficulties during the lockup period. Now that they [have] gained access to their tokens, they will urge to sell them.

The Price May Be Affected Short Term

Ben Caselin – vice president at crypto exchange Mask EX – said:

Shapella is beneficial to the Ethereum project and should be regarded as a bullish event. Overall, we could expect some volatility around the event as is often the case when Ethereum goes through another upgrade, mostly because crypto markets are still primarily sentiment driven… Nonetheless, macro-conditions are more important at this stage, and we cannot isolate changes on the Ethereum chain from the wider economic context within which investors determine their risk appetite.

Not long after the upgrade occurred, Ethereum shot up to the $1,900 range.

Tags: Ethereum, merge, Shapella