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Shanghai Upgrade to Greatly Impact Ethereum Volatility

OrBit Markets, a supplier of institutional liquidity, has stated that the Shanghai upgrade will make it possible to withdraw more than 16.5 million ETH staked in the blockchain. leading to a major volatility.

Photo by Zoltan Tasi / Unsplash

According to recent reports, the next Ethereum Shanghai upgrade could cause Ether (ETH) volatility in a way that Merge could not. OrBit Markets, a supplier of institutional liquidity, has stated that the Shanghai upgrade will make it possible to withdraw more than 16.5 million ETH staked in the blockchain.

In addition, OrBit Markets suggested (1) acquiring an ETH volatility swap amid the Shanghai upgrade. This will assist in profiting on the projected price volatility rise that will follow the mainnet upgrade that will take place in March.

Analysts believe that the Shanghai upgrade will immediately impact the demand-supply equilibrium of the Ether market. This anticipated occurrence may ensure that the cryptocurrency market will continue to be more volatile in the weeks following Shanghai than it was after the Merge.

Orbit Markets co-founder Yang Zhiming made the following statement in response to a comparison between the Ethereum Shanghai upgrade and September's Merge, which successfully switched the network from proof-of-work to proof-of-stake:

"However, things might turn out differently this time. The Shanghai update will modify the supply and demand of ETH in both the short and the long term, resulting in the potential to impact the price of ETH greatly.

High Volatility Expected in Ether

The Ethereum Merge may not have presented traders with a particularly volatile environment. Consequently, Zhiming noted that it is understandable if these traders likewise disregard the price volatility in Shanghai's upgrading market.

On the other hand, as the co-founder of Orbit Markets and the former head of derivatives for Asia Pacific at Deutsche Bank explained:

It is anticipated that approximately $25 billion worth of ETH would become accessible for withdrawal and sale. Because it is anticipated that the yields from staking would decline after the upgrade, buyers who have previously staked may de-stake and move their holdings to other assets that offer higher yields.

This would put a significant amount of selling pressure on the price of ETH.

The impending Shanghai upgrade will take place several months after the breakthrough Merge upgrade, making the Ethereum network more environmentally friendly.

Additionally, due to the Merge, the blockchain is now more readily available, and it was anticipated that Ether would evolve into a deflationary currency.

However, the crucial network redesign had yet to have the expected immediate influence on the supply-demand mechanics of the cryptocurrency, even though many people believed it would.

On the day the Merge took place, the price of ETH fell by 10%, reaching a low of $1,472. However, market volatility subsequently subsided as prices traded narrowly. In addition, the price remained stable in a rather narrow band between $1,300 and $1,400 over the subsequent four weeks after Merge.

Ether's 30-day realized volatility dropped from an average of 85% to approximately 60% in the four weeks that followed the well-known mainnet upgrade. A statistic known as realized volatility evaluates the amount of variance in price turbulence observed over a given period.

Through its Shandong testnet, Ethereum formally laid the framework for the impending Shanghai upgrade in October last year.

When asked about the significance of the testnet, an Ethereum Foundation DevOps developer named Parithosh Jayanthi described it as a dress rehearsal.

Jayanthi claims that Shandong allowed developers to "test out the probable EIPs to uncover flaws."

Ethereum is still the most popular blockchain, and its native ETH currency is currently the second-largest cryptocurrency in market capitalization.

Currently, Ether is trading at $ 1690, up 3.5 % from yesterday's close price.

Ethereum Chart Source: (1.1)