Once Ethereum’s Shanghai-Capella upgrade happens, more than 18 million ETH – approximately $34 billion – will be unlocked. But how will the Shapella upgrade affect ETH prices?

April 12 marks the day Ethereum will end its two-year transition to proof of stake. The final step? The Shanghai upgrade.

Also known as Capella (the name it goes by on the consensus network), and affectionately bundled up as “Shapella”, the upgrade will introduce many technical improvements to the network. But beyond technical improvements, many users and traders only care about one new feature that will be introduced: staking withdrawals.

Currently, more than 18 million ETH, currently worth around $34 billion, is locked up on the Ethereum network. Upon the Shapella upgrade, the locked ETH will finally be available to validators, making investors uneasy as to what may happen to the second largest crypto by market capitalization.

If the upgrade goes well, Ethereum stakers can send withdrawal requests to the work right after Shapella goes live. However, users won’t be getting their money immediately – they would be placed in a withdrawal queue to ‘unstake’ their ETH, and users can expect to wait weeks or even months to get their assets back.

Stakers who are participating in pools and other service providers, like Lido users and Coinbase customers can also similarly expect a long wait time if they choose to unstake. 

Price attitudes

Andrew Thurman, a data analyst at Nansen, expects that ETH prices in the short-term would be “a little bit more muted” than what the crypto industry is expecting.

“With many speculating whether this event will cause a massive sell-off in price, it’s important to realise that the withdrawal queue only allows a limited set of requests per day (115,200),”  says  Guilhem Chaumont, CEO and co-founder of Flowdesk. Chaumont guesses that ETH unstaking wouldn’t suddenly create a plunge in prices, despite ongoing pressure caused from the unlocked ETH.

Will much change?

According to Jacob Cantele, head of product at Ethereum layer-2 Mantle, people have already been able to unstake their ETH. By using liquid staking services like Rocket Pool, savvy traders were already using the upcoming Ethereum network feature even before Shapella’s deployment.

“Most people have been able to sell [staked ETH] for quite some time, because the majority of ETH is being staked through platforms with liquid staking tokens, like Lido or Rocket Pool,” says Cantele. “So I don’t actually think [Shapella] represents a major shift in the economics of Ethereum.”

Others in the industry also share the opinion that ETH economics may not budge as much. As Matthew Niemerg, co-founder of privacy-enhancing blockchain network Aleph Zero puts it, “to be more direct, it’s priced in.”

“It is entirely possible that there will be more people willing to stake ETH (locking up liquidity and reducing the available supply) after the upgrade, as people will be more certain that they can safely unstake their ETH,” said Niemerg.

While we may not see ETH price action to be impacted drastically, Nansen’s Andrew Thurman predicts that Shapella would give Ethereum investors a purpose to be more bullish in the long run.

“It’s gonna take a while for people to really understand what the dynamics are regarding whether or not this is a bullish or bearish action in the short to medium term,” he said. “I will say, though, that on a long enough time horizon, it’s really difficult to come up with a thesis that isn’t wildly bullish.”

Competition for custody

Thurman says that the asset custody sector would be getting more competitive – and this may lift ETH prices over time.

Recently, major banks like JPMorgan Chase and Standard Chartered have been vocal of their interest in providing cryptocurrency custody services. With crypto custody, users pay banks to entrust them in safekeeping and managing their financial assets and instruments.

But with Shapella, users can custody ETH as a bank, for a small amount of money if not none. In that case, Thurman says that it will lead to even more locked up ETH – which makes the feature “great for the price in the long run.”