(Bloomberg) — Ether rallied past $2,000 for the first time since August after a widely anticipated software upgrade to the most commercially important blockchain went according to plan, and as worries of initial rapid outflows proved unfounded.
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The so-called Shanghai, or Shapella, update enables investors to queue up to withdraw Ether coins they had pledged to help operate the Ethereum network in return for rewards, a process called staking. And so far, 96% of withdrawal volume has been from users withdrawing their rewards instead of their entire stakes, according to researcher Flipside Crypto.
Ether jumped as much as 6% to $2,023 on Thursday, taking it to levels not seen since May 2022. Its 68% year-to-date gain still trails Bitcoin’s 84% gain. But there could be some additional upside if the size of withdrawals in the queue — now two weeks long, according to Rated Network Explorer — remains muted.
“This could still be volatile,” said Noelle Acheson, author of the “Crypto Is Macro Now” newsletter. “There is a queue forming for ETH withdrawals, and the looming sell pressure from Kraken, Celsius and others — that have to un-stake” but the “overall liquidity situation is favorable for crypto assets.”
Crypto exchange Kraken, which is discontinuing staking products in the US as part of a settlement with the US Securities and Exchange Commission, dominated the initial exit queue, based on figures compiled by Rated.
But overall, the amount of Ether entering the market from Shanghai withdrawals is much lower than what was previously expected, said Grayscale Research analyst Matt Maximo. “The amount of new ETH being staked is also outpacing the withdrawals, which is creating added buy pressure to offset the withdrawn ETH.”
About 1.2 million of Ether tokens — worth approximately $2.3 billion at current prices — was expected to be withdrawn over the next five days, according to researcher Coin Metrics. However, that represents just 6% of the roughly $36.7 billion of Ether locked up for staking, data from Staking Rewards shows.
Investors had been braced for crypto price swings around the upgrade, but so far digital-asset markets have been largely steady.
Smaller coins from applications that try to make it easier to harness Ether staking rewards, such as Lido and Rocket Pool, advanced, according to CoinGecko data. LDO climbed 7.2% and RPL was up 11%, the data showed.
The Ethereum blockchain in September last year transitioned to a proof-of-stake from a proof-of-work approach, a revamp called the Merge that slashed the network’s electricity consumption.
Proof-of-stake uses piles of Ether — placed in special so-called staking wallets — to help order transactions on the Ethereum network. And with investors now able to withdraw staked funds — boosting the appeal of an Ether investment — a debate is stirring over whether Ethereum could someday replace Bitcoin as the world’s largest digital currency.
“Ethereum is updating and navigating with great skill — so far anyway — and cementing its position as the No. 2 crypto,” said Aaron Brown, a crypto investor who writes for Bloomberg Opinion. The network is “moving to the future much faster than Bitcoin.”
–With assistance from Sidhartha Shukla and Carly Wanna.
(Updates price reactions and adds commentary in fourth paragraph.)
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