- Crypto execs and venture investors told Insider how Ethereum's upgrade will impact the market.
- The second-largest crypto could see heightened volatility as a result of the changes, one expert said.
Ethereum's highly-anticipated software upgrade went live late Wednesday, and its implications for the second-largest cryptocurrency are huge.
The network changes, dubbed the "Shanghai" or "Shapella" upgrade, allow stakers, or those who contribute to the smart contract network by holding their ether on it, to begin withdrawing their crypto. Previously, stakers were still earning financial rewards while locking up their tokens, but their investments were less liquid.
Over 15% of all ethereum is staked, according to on-chain data from Dune Analytics, an amount worth $33.73 billion. Investors can technically begin selling off some of these assets–a whopping 16.3 million tokens–since the upgrade is live.
"It's hard to tell [the impact] in the short term as there will be a lot of reshuffling in the [ether] staked," Brian Fakhoury, a junior partner of venture firm Mechanism Capital, told Insider. "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," Fakhoury added. "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."
By some estimates, however, there will be at least $300 million worth of selling pressure, per an on-chain report from Glassnode, reported by CoinDesk. Wall Street giants such as JPMorgan say there may be volatility from the upgrade as a large sum of staking rewards become available this week.
"The staked tokens unlock is significant, and it may cause temporary volatility on the market," Constantin Guggi, CEO and cofounder of blockchain solutions provider Swisstronik, told Insider. "Due to the ever-changing nature of the industry, including its regulatory aspect, some validators had legal and financial difficulties during the lockup period."
Guggi added: "Now that they gained access to their tokens, they will urge to sell them."
Although there may be some "re-balancing" concerns for ether in the near future due to withdrawals, the latest upgrade is largely positive for the network's future, according to another crypto exec.
"Shapella is beneficial to the Ethereum project and should be regarded as a bullish event," Ben Caselin, vice president at crypto exchange MaskEX, told Insider. "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."
The upgrade also finalizes the switch from Ethereum's proof-of-work to proof-of-stake mechanism, Caselin says, which cuts the network's energy usage by 99.9%, a process that began with the Merge upgrade last year.
"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," Caselin added, a nod to monetary tightening from central banks and a gloomy economic environment.
Finally, some experts see the upgrade as a bull case for more institutional investment in Ethereum's network, describing Shapella as a "major milestone" for the ecosystem.
"We expect to see more institutions interested in staking ETH after the upgrade since they have access to liquidity with the ability to now unstake their ETH," Diogo Mónica, cofounder and president of blockchain infrastructure provider Anchorage Digital, told Insider.
Mónica added: "Shapella paves the path forward for broader institutional participation in ETH staking—from both crypto-native and traditional players alike—which is essential for the future security and stability of the network."