Countdown 7 days! Shapella upgrade is approaching and Ethereum breaks through $1900

Ethereum tokens are seeing a rebound as the Ethereum Shanghai-cappella (known as Shapella) upgrade date (April 12) approaches.

Data from Bitpush Terminal shows that as of press time, Ethereum is trading at $1,906, up about 2% in 24 hours. Earlier in the day, ETH soared to $1,941, the highest level since August last year. Data provided by TradingView shows that the most popular trading pair is ETH/USDT, with a trading volume accounting for 9.1% of the total trading volume and a 24-hour trading volume of about $1.04 billion.

Analysts at investment bank Bernstein said in a note on Wednesday that Ethereum is breaking out of the “Shanghai upgrade catalyst.”

Bernstein analysts led by Gautam Chhugani said that while Ethereum has underperformed Bitcoin by about 14% this year, the token is in “breakout mode.” The investment bank compared the move to the price surge before The Merge, when Ethereum was trading above $1,900.

The Shanghai upgrade will allow staked Ethereum deposited on the chain before the September merge to be withdrawn. Matt Kunke, a research analyst at GSR , told The Block that there has long been a narrative that this upgrade will cause selling pressure on Ethereum, with some believing that Shapella will "introduce selling pressure as staked Ethereum becomes withdrawable for the first time," but that pessimism has begun to dissipate, replaced by "a deeper understanding of the context of Ethereum staking."

Matt Kunke believes that the largest portion of Ethereum stakers without any liquidity are independent stakers, who are “most optimistic about the Ethereum ecosystem” among all stakers and are therefore “least likely to exit completely, and they will continue to help protect Ethereum.”

There will be no “liquidity cliff”

Kunke said the Ethereum upgrade also includes a queuing mechanism that will divert validators withdrawing tokens over weeks to months, thereby preventing a “liquidity cliff,” and GSR expects the drop to be temporary and that the total amount of stake securing the Ethereum network will grow significantly this year.

Noelle Acheson, author of the Crypto is Macro Now newsletter, agreed, arguing that most of the staked ETH belongs to “long-term network participants who are unlikely to exit at this stage.”

“On the other hand, the upgrade could make staking more attractive through its additional flexibility, and if Treasury yields continue to fall, the nearly 5% yield offered by staking could become even more attractive,” Acheson added.

Bullish sentiment returns

Will Tamplin, senior analyst at research firm Fairlead Strategies, said in his analysis report: "Ethereum appears to be moving higher from a flag pattern, which explains the recent upward trend."

Tamplin said ETH has initial support around $1,670 and could face resistance around $2,000, a psychological threshold that roughly aligns with the August 2022 high.

Greg Magadini, head of derivatives at crypto analytics firm Amberdata , said in a tweet that ETH's 25-delta call option is more expensive than ETH's 25-delta put option, indicating that traders prefer upside exposure. Typically, call option buyers are bullish on the market, while put option buyers are bearish.

“The recent rally has been driven primarily by BTC, but now we are seeing interest in altcoins as Twitter sentiment and speculation on Dogecoin rise,” Magadini wrote.

According to data from ultrasound.money, ETH continues to shift towards deflation, with its annualized inflation rate currently at -0.32%. This means that the amount of ETH destroyed exceeds the amount minted. Meanwhile, Lido DAO's LDO and Rocket Pool 's RPL (the governance token of the liquidity staking protocol) both rose by more than 2%.

Ethereum "whale" holdings remain strong

From an on-chain data perspective, both the short-term and long-term trends for Ethereum look bullish.

According to the latest data from Santiment , most Ethereum whale addresses have increased their holdings of ETH in recent weeks. Among them, the ETH supply held by addresses with a balance of 1,000-10,000 ETH (blue in the figure below) increased by 0.5% in March.

The data also shows that addresses with balances of 1 million to 10 million ETH (brown curve in the figure above) and 10 million to 100 million ETH increased by 0.4% and 0.5% respectively.

The growth can likely be attributed to the network’s proof-of-stake contracts — either directly or through the use of third-party platforms such as Lido DAO (LDO), which currently has over 18 million ETH staked in official Ethereum 2.0 addresses after rising by around 3.5% in March.

As of press time, there are only 7 days left until the Shanghai upgrade, and some traders expect ETH prices to continue to fluctuate. Crypto options trading firm QCP Capital said in its market update that speculative ETH long positions may increase later this month, and if the second quarter proves to be dominated by altcoins, BTC and ETH will continue to consolidate amid the intersection of a slowing US economy and loose monetary policies.