Don't Buy the News: Ethereum's Shanghai Upgrade Could Cost You Short-Term

You learn in Econ 101 that when the supply of something increases and demand stays the same, its prices go...?

Down. New supply without new demand causes prices to drop, and vice versa. It's one of the most basic principles of economics and the driving factor of all market behavior.

Especially in the cryptocurrency market. With cryptocurrency, there are no earnings reports, company financials, or government subsidies to prop up an asset's value-we're at the mercy of market sentiment.

Supply and demand are all we've got. And it could shoot Ethereum (ETH) investors in the foot come Monday. Here's why:

Last night, Ethereum completed its Shanghai upgrade which opened withdrawal requests for all of the staked Ethereum that's been locked up in exchanges since December 2020 when the Merge first began.

This means that ETH is now a fully-fledged proof-of-stake (PoS) network after a multiyear transition from its original proof-of-work protocol.

The new Ethereum is faster, cheaper, and more energy efficient than its original iteration...

...that's the good news.

As far as how this upgrade will impact ETH's price in the short term, that won't be as pretty...

The Shanghai upgrade also means that 16 million ETH tokens that have been locked up in staking pools for two years are now available to withdraw.

ETH investors who staked their assets back in December 2020 might need that money to, I don't know, pay the groceries...invest in other assets.

One thing is for sure: someone, somewhere, has been waiting to cash out on almost 200% gains that ETH has produced since staking first launched in December 2020. And I have a feeling there's more than one.

Just one hour after the Shanghai upgrade launched, roughly $10 million worth of ETH had already been withdrawn. And while Ethereum is attempting to mitigate any price crash by capping the amount of staked ETH released each day, they're just prolonging the inevitable.

And inevitably, supply and demand are going to win.

Overall, the upgrade to proof-of-stake is a good thing for Ethereum. Its original protocol was simply unsustainable if ETH wanted to continue growing with the rest of the market. This Shanghai upgrade won't impact its price long-term.

But for all the dummies buying ETH right now after last night's upgrade-the ones causing its price to surge 5% in 24H-don't say I didn't warn you when you're in the red by Monday.

Watch the replay of American Institute for Crypto Investors LIVE from this morning to learn more about how this upgrade will impact ETH investors.

Press play to watch now:

Stay liquid,

Nick Black
Chief Crypto Strategist, American Institute for Crypto Investors

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