ether spiked this week to a nine-month high, ahead of a major network upgrade that some crypto enthusiasts say will turn the digital currency into a more profitable long-term investment.
The world’s second-largest cryptocurrency is up about 6% in the past three days, surpassing $1,900, while bitcoin has been mostly flat during that period.
Starting next Wednesday, an upgrade to the blockchain, dubbed “Shapella”, will allow ether holders to withdraw their assets. Until this point, investors will have to use centralized exchanges like Coinbase or decentralized finance (DeFi) protocols like Lido, essentially to exchange their locked ether for a token of equivalent value.
The recent rally has followed a pattern similar to past crazes around network upgrades. In September, ethereum ran ahead of one historic transition to a more energy-efficient way to protect the networkcalled proof of stake.
Ethereum previously had an extensive network of miners around the planet running highly specialized computers that processed mathematical equations to validate transactions. After the so-called “Consolidation” upgrade in September, ethereum switched to a proof-of-stake system, swapping miners for validators. Instead of running mainframe banks, validators leverage their existing ether cache as a means of verifying transactions and minting new tokens.
“Ether itself becomes a useful asset,” said Danny Ryan, a researcher at the Ethereum Foundation, about the September upgrade. “It’s not something you can speculate on, it’s something that can be earned. profit.”
In the post-consolidation era, ether took on some of the characteristics of a traditional financial asset, paying interest to its holders.
“This is probably the lowest risk return in the ethereum ecosystem,” Ryan said, adding that the returns in other corners of DeFi involve smart contracts and other types of risk to DeFi. other works.
So far, ether has underperformed bitcoin, but recent gains have helped close the gap. Ether is up nearly 59% this year, compared to bitcoin’s 70% gain in 2023.
Currently, over 18 million ether tokens approximately $32.5 billion worth of staking, meaning 15% of the total supply of ether is considered a locked asset.
While the upcoming upgrade will unlock most of that value, giving owners more control over their assets, there are some concerns that issuing too many tokens will have impact pervades the market. K33 Research says that even with limited withdrawals, $2.4 billion worth of ether could still go to the open market said in a note on Tuesday.
“The drop can happen right after the upgrade is completed, as a large amount of ETH will be unlocked and many people will also sell their ETH,” said Ilya Volkov, who runs a blockchain-based fintech platform. “. Volkov said he is optimistic about the long term.
The ratio between open interest on ether put and call options hit their highest level since May on Tuesday, according to data presented by crypto news and data analysis firm The Block. That could signal a buildup of bearish bets leading to a network upgrade.
According to research from Bernstein, of the 18 million ether tokens locked on the blockchain, nearly 70% are staked through protocols like Lido, which provides a measure of liquidity for investors.
“Liquidity for 70% of ETH staked is not new, they can do it anyway,” Bernstein writes. The company describes the remaining 30% of holders as “initial believers” who are unlikely to exit their positions at this price.
The ability to deposit and withdraw tokens could incentivize more investors to stake ether, and some analysts say they expect a significant inflow of capital into the network once it proves that funds are staked. can be drawn with relative ease.
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