3 - 5 minute read
Ethereum, the second-largest cryptocurrency by market capitalization, is poised for a major upgrade on April 12. The Shanghai upgrade will mark the completion of the network’s transition to a proof-of-stake system, making it more secure and attractive for investors. Ethereum researcher Vivek Raman believes that while the upgrade may have short-term negative effects on the price of ETH, it will ultimately be very bullish for the cryptocurrency. In this article, we explore the implications of the upcoming ETH upgrade and what it means for traders.
The Shanghai upgrade is the last in a series of upgrades that began in October 2020 with the Merge upgrade. This upgrade will allow network validators to withdraw funds that have been locked to secure the network since December 2020 when the Beacon Chain went live. The upgrade will free up around 18 million ETH that have been locked up in staking and not available for trading. This influx of supply could put some selling pressure on ETH’s price in the short term.
Short-term Effects
It’s not uncommon for cryptocurrencies to experience price swings before and after major upgrades. The market usually reacts to news with volatility, and the Shanghai upgrade is no exception. According to Ethan Vera, the chief strategist at Luxor, a mining pool and staking services provider, Chinese miners may dump their ETH holdings following the upgrade, leading to a price drop. However, the short-term implications of the upgrade are unlikely to have long-lasting effects.
Why the Shanghai Upgrade is Bullish for ETH
Despite the short-term negative impact, Ethereum researcher Vivek Raman sees the Shanghai upgrade as bullish for Ethereum. Raman argues that the upgrade will de-risk the ETH investment and make it more attractive for institutional investors. More capital entering ETH staking will improve network security and protect it against hacking attempts. The higher the cost to attack the chain, the more secure it becomes, which makes it more appealing to investors.
The Need for Decentralization
Decentralization is a vital aspect of blockchain technology, and the Shanghai upgrade aims to achieve it. With the upgrade, the Ethereum network will be more distributed, making it harder for a single entity to control the network. Currently, around two-thirds of the Ethereum network is controlled by a small number of mining pools. This level of centralization puts the network at risk of being hacked or attacked. The Shanghai upgrade aims to reduce this risk by making it easier for more people to participate in staking.
Conclusion
The Shanghai upgrade is an essential step towards improving the security and decentralization of the Ethereum network. While it may have short-term negative effects on the price of ETH, the long-term implications are bullish. Traders should remain patient and keep an eye on the market as it reacts to the news. In the end, the upgrade will make ETH more attractive to institutional investors and improve network security, making it a better investment option for long-term holders. Investors should remain mindful of the risks and focus on the fundamental value of the asset rather than short-term price fluctuations.
