Ethereum Shanghai Upgrade Projected to Stoke More Price Volatility than September Merge Upgrade

UTC by Tolu Ajiboye · 3 min read
Ethereum Shanghai Upgrade Projected to Stoke More Price Volatility than September Merge Upgrade
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According to an Orbit Markets analyst, the upcoming Ethereum Shanghai upgrade could bring sustained Ether price volatility. 

Reports suggest that the upcoming Ethereum Shanghai upgrade could induce Ether (ETH) price volatility in a way the Merge could not. According to institutional liquidity provider OrBit Markets, the Shanghai upgrade would facilitate withdrawals of over 16.5 million ETH staked in the blockchain. Furthermore, OrBit Markets also recommended purchasing an ETH volatility swap amid the Shanghai upgrade. This will help to profit from the anticipated price turbulence surge following the March mainnet upgrade.

According to analysts, the Shanghai upgrade could immediately impact the Ether market’s demand-supply balance. This projected development could ensure the crypto remains more volatile in the weeks post-Shanghai than it was after the Merge.

Comparing the Ethereum Shanghai upgrade to September’s Merge, which successfully transitioned the network from proof-of-work to proof-of-stake, Orbit Markets co-founder Yang Zhiming said:

“This time could be different though. While the Merge was a pure technological shift with no direct economic impact, the Shanghai upgrade will change the supply and demand of ETH both in the short term and long term, and therefore capable of having a significant impact on the ETH price.”

Analyst Suggests that Ethereum Shanghai Volatility Could Prove Doubters Wrong

Traders may not have seen much volatility with the Ethereum Merge. As a result, Zhiming explained that it is excusable if these traders also write off Shanghai upgrade price volatility. However, the Orbit Markets co-founder and former Deutsche Bank Asia Pacific head of derivatives explained:

“Some $25 billion worth of ETH will become available for withdrawals and sale. With the staking yields expected to decrease following the upgrade, investors who previously staked may un-stake and move to other assets offering better yields. This would create large selling pressures on the ETH price.”

The forthcoming Shanghai upgrade comes months after the revolutionary Merge, which made the Ethereum network more environmentally friendly. In addition, the Merge also rendered the blockchain more easily accessible and projected that Ether would become a deflationary currency. However, the pivotal network overhaul failed to immediately impact the supply-demand dynamics of the crypto as many thought it would.

ETH price slipped 10% to $1,472 the day the Merge took place, but volatility quickly fizzled out as prices traded narrowly. Furthermore, this narrow range of between $1,300 and $1,400 lingered for the next four weeks after the Merge. In the four weeks following the renowned mainnet upgrade, Ether’s 30-day realized volatility plunged from an annualized 85% to almost 60%. Realized volatility is a metric that assesses variation in price turbulence seen over a specific period.

Shandong Testnet

Last October, Ethereum officially laid the groundwork for the upcoming Shanghai upgrade via its Shandong testnet. At the time, Ethereum Foundation DevOps engineer Parithosh Jayanthi explained that the testnet was a dress rehearsal. According to Jayanthi, Shandong allowed developers to “try out the potential EIPs to find issues.”

Ethereum remains the most widely utilized blockchain, with its native ETH currency being the second-largest crypto by market cap.

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