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Ethereum price reaches lowest level relative to Bitcoin in 5 months

Traders question whether the underperformance is due to the Shapella hard fork, while derivatives data indicates that ETH buyers lack conviction.

The previous six months should have been extremely beneficial to Ether's (ETH) price, especially after the project's most significant upgrade ever in September 2022. However, the reality was the opposite: between September 15, 2022, and March 15, 2023, Ether underperformed Bitcoin (BTC) by 10%.

Ether/Bitcoin price on Bitfinex, 2-day. Source: TradingView

The price ratio of 0.068 ETH/BTC had been holding since October 2022, a support that was broken on March 15. Whatever the reason for the underperformance, traders currently have little confidence in placing leverage bets, according to ETH futures and options data.

But first, one should consider why Ether's price was expected to rise in the previous six months. On September 15, 2022, the Merge, a hard fork that switched the network to a proof-of-stake consensus mechanism, occurred. It enabled a much lower, even negative, coin issuing rate. But, more importantly, the change paved the way for parallel processing that aimed to bring scalability and lower transaction costs to the Ethereum network. 

The Shapella hard fork, expected to take effect on the mainnet in April, is the next step in the Ethereum network upgrade. The change will allow validators who previously deposited 32 ETH to enter the staking mechanism to withdraw in part or in full. While this development is generally positive because it gives validators more flexibility, the potential 1.76 million ETH unlock is a negative consequence.

However, there is a cap on the number of validators that can exit; therefore, the maximum daily unstake is 70,000 ETH. Moreover, after exiting the validation process, one may choose between Lido, Rocket Pool, or a decentralized finance (DeFi) application for yield mechanisms. These coins will not necessarily be sold at the market.

Let's look at Ether derivatives data to understand if the recent drop below the 0.068 ETH/BTC ratio has affected investors' sentiment.

ETH futures recovered from a state of panic

In healthy markets, the annualized three-month futures premium should trade between 5% and 10% to cover associated costs and risks. However, when the contract trades at a discount (backwardation) relative to traditional spot markets, it indicates traders' lack of confidence and is regarded as a bearish indicator.

Ether 2-month futures annualized premium. Source: Laevitas.ch

Derivatives traders became uncomfortable holding leverage long (bull) positions as the Ether futures premium moved below zero on March 11, down from 3.5% just two days prior. More importantly, the current 2.5% premium remains modest and distant from the 5% neutral-to-bullish threshold.

Nonetheless, declining demand for leverage longs (bulls) does not necessarily imply an expectation of negative price action. As a result, traders should examine Ether's options markets to understand how whales and market makers price the likelihood of future price movements.

Related: Lark Davis on fighting social media storms, and why he’s an ETH bull — Hall of Flame

ETH options confirm a lack of risk appetite

The 25% delta skew is a telling sign when market makers and arbitrage desks are overcharging for upside or downside protection. In bear markets, options investors give higher odds for a price dump, causing the skew indicator to rise above 8%. On the other hand, bullish markets tend to drive the skew metric below -8%, meaning the bearish put options are in less demand.

Ether 30-day options 25% delta skew: Source: Laevitas.ch

On March 3, the delta skew crossed the bearish 8% threshold, indicating stress among professional traders. The fear levels peaked on March 10, when the price of Ether plummeted to $1,370, its lowest level in 56 days, although the price of ETH rebounded above $1,480 on March 12.

Surprisingly, on March 12, the 25% delta skew metric continued to rise, reaching its highest level of skepticism since November 2022. That happened just hours before Ether's price rose 20% in 48 hours. That explains why ETH traders shorting futures contracts faced $507 million in liquidations.

The 3% delta skew metric currently signals a balanced demand for ETH call and put options. When combined with the neutral stance on ETH futures premium, the derivatives market indicates that professional traders are hesitant to place either bullish or bearish bets. Unfortunately, ETH derivatives metrics do not favor traders expecting Ether to reclaim the 0.068 level against Bitcoin in the near term.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Warning sign for ETH price? Ethereum volume profile is down 90% since March 2020

Ether’s 78% price recovery since July 2022 is at risk of exhaustion due to an unconvincing volume profile.

The price of Ethereum’s native token, Ether (ETH), has recovered 78% since June 2022. But this doesn’t guarantee further upside, particularly with declining trading volumes suggesting that the risk of a major correction is high. 

Ether volume profile drops 90% since March 2020

A “volume profile” indicator displays trading activity across prices, with the blue indicating buying volume and the yellow indicating sell volume. 

Illustration of a volume profile bar. Source: TradingView

In March 2020, when the market bottomed, Ether’s volume profile on a weekly chart showed about 160 million ETH trades across the $85–$270 price range. At the time, the selling volume was greater than the buying volume by around 4 million ETH.

But Ether buying volume regained momentum after ETH price rallied above $270 in July 2020.

Notably, between July 2020 and November 2020, the Ether volume profile displayed about 64.25 million ETH trades across the $270–$450 range, with buying volume exceeding selling volume by almost 1 million ETH.

ETH/USD weekly price chart. Source: TradingView

The price-volume trend remained largely synchronous with one another until November 2021, when ETH/USD reached its record high at around $4,950. 

In other words, most traders purchased Ether as its price climbed, illustrating their confidence in the longevity of the bullish reversal that followed the March 2020 crash.

However, that confidence is missing in the 2023 Ether market rebound.

2022 ETH price bottom differs from two years ago

At first, the Ether volume profile at the beginning of it price recovery in June 2022 from $900 shows 12.50 million ETH trades, down more than 90% from March 2020.

But despite a 75% price recovery, fewer traders have been participating in Ether’s potential bottom this time around when compared with the beginning of the 2020 bull market.

What’s further concerning is the rising sell-volumes during the current ETH price rebound.

For instance, the red horizontal line in the daily chart below, dubbed the “point of control,” or POC — which represents the area with the most open trading positions — shows a net 8.21 million ETH volume of around $1,550, with sellers exceeding buyers by 170,000 ETH trades.

ETH/USD daily price chart. Source: TradingView

In other words, ETH’s ongoing price recovery might not have the legs it did in March 2020, especially when coupled with the overall volume profile decline over the past two years.

Most Ether investors are still in profit

More downside cues for Ether come from one of Ethereum’s widely monitored on-chain metrics that tracks the percentage of ETH’s circulating supply in profit.

Related: Ethereum eyes 25% correction in March, but ETH price bulls have a silver lining

As of March 6, about 65% of ETH was bought at a lower price. In other words, investors’ probability of securing profits remains high in the event of a significant price drop.

Ether circulating supply in profit. Source: Glassnode

Therefore, Ether price could see the real bottom if the supply in profit falls below 30% (green zone), which would reflect previous market cycles and the March 2020 bottom, as shown in the chart above.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Ethereum eyes 25% correction in March but ETH price bulls have a silver lining

The Ethereum market has grown cautious around the long-awaited Shanghai upgrade, which will unlock 17.4 million ETH into circulation.

The price of Ethereum's native token, Ether (ETH), shows a growing conflict among traders about the market direction for March. This uncertainty has resulted in ETH price consolidating inside a narrow sideways range between $1,600 and $1,700 since Feb. 15.

25% ETH price correction on the table in March

The uncertainty stems from Ethereum's long-awaited Shanghai upgrade going live some time in March.

Several analysts predict Shanghai's token unlock feature, which will enable stakers to withdraw their vested tokens from Ethereum's proof-of-stake smart contract, will trigger a short-term selloff event. 

The Ethereum PoS smart contract has attracted more than 17.4 million ETH (~$28.35 billion at the current exchange rate) since its introduction in December 2020, per Etherscan.

In addition, Ether is finding it difficult to break above the technical resistance range. The Ethereum token has attempted to flip the $1,650-1,700 area to support multiple times since August 2022, as shown by the red bar in the chart below.

ETH/USD daily price chart. Source: TradingView

Interestingly, each failed breakout attempt has resulted in a strong pullback toward a common support line — a multi-month ascending trendline (black).

Therefore, if history is any indication, ETH's next correction could potentially land its price near $1,250, down 25% from the current levels. Conversely, a break above $1,650-1,700 positions ETH for the $1,925-2,000 range (purple) as its next upside target.

Future ETH selloffs will be limited — data trackers

From an on-chain perspective, as extended Ether price crash appears less likely. 

Notably, there's been a massive drop in ETH supplies on exchanges since September — from around 30% to 11%. Theoretically, this reduces the immediate sell pressure as capital moves to the sidelines.

"The trend in crypto, particularly since September, has been quickly moving self-custody," Santiment noted, adding:

"This trend picked up after the FTX collapse. Regardless, with both BTC and ETH around 5-year low exchange supplies, future sell-offs will be limited."

In addition, data analytics firm CryptoQuant has reached a similar conclusion about potential Ether selloffs in the future, primarily in the wake of the Shanghai hard fork.

Related: 3 tips for trading Ethereum this year

CryptoQuant notes that 60% of the staked ETH supply — about 10.3 million ETH — is currently at a loss. Meanwhile, Lido DAO, the largest Ethereum staking provider, holds 30% of all staked ETH at an average loss of $1,000, or 24%.

"Typically, selling pressure arises when participants have extreme profits, which is not the case for staked ETH currently," CryptoQuant wrote:

Additionally, the most profitable staked ETH was staked less than a year ago and has not seen significant profit-taking events in the past.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Ethereum Shapella upgrade gets new date, making way for un-staking ETH

The upgrade is only for the Sepolia network and a subsequent upgrade for Goerli network would be introduced in March.

Ethereum core developer Tim Beiko announced the Shapella (Shanghai/Capella) upgrade is scheduled for Feb. 28. The Shapella network upgrade will activate on the Sepolia network at epoch 56832.

Shanghai and Capella are the names of the upcoming Ethereum hard fork. Shanghai is the name of the fork on the execution client side, and Capella is the upgrade name on the consensus layer client side.

Some of the key Ethereum improvement proposals (EIP) changes on the execution layer include Warm Coinbase and Beacon chain push withdrawals. The push withdrawals will make way for validator withdrawals from the beacon chain to the EVM via a new "system-level" operation type. On the other hand, WARM Coinbase could be a game changer that could reduce network fees for some of the key network participants called builders.

Coinbase here is the name of the software that builders use to receive new tokens on the network. Every new transaction on the platform needs to interact with the Coinbase software multiple times, The first interaction costs more as the software needs to “warm” up, and then the fees decline as the interactions increase. However, with the introduction of EIP-3651, the Coinbase software will remain warm to begin with, thus requiring a lower gas fee to access it.

Related: Ethereum on-chain data suggests ETH sell pressure could be a non-event after the Shanghai upgrade

Major changes to the consensus layer include full and partial withdrawals for validators and independent state and block historical accumulators, replacing the original singular historical roots.

Partial withdrawal means validators can withdraw Ether (ETH) rewards in excess of 32 Ether and keep validating. In case they want a full withdrawal, validators can fully exit and take all 32 Ether and rewards and stop doing the work

The upcoming upgrade would enable validators to withdraw their staked Ether (ETH) from the Beacon Chain to the execution layer. Moreover, the upgrade would bring changes to the execution layer and consensus layer adding new features, making it a key upgrade following The Merge.

Stakers and non-stakers who operate nodes must, however, upgrade their nodes to the most recent Ethereum client versions in order to take advantage of the Sepolia upgrade. After the deployment of the Sepolia upgrade, the next step would be the release of the Shanghai upgrade on the Ethereum Goerli test network, expected to commence in March.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Ethereum on-chain data suggests ETH sell pressure could be a non-event after the Shanghai upgrade

A recent Binance report details the status of Ether staking and explores why the Shanghai upgrade may not result in the ETH sell pressure some traders have predicted.

The upcoming Ethereum Shanghai hard fork is slated to occur in March 2023, and the upgrade will cap off the network’s move to proof-of-stake (PoS), which started during the Merge on Sept. 15, 2022. Once Shanghai is implemented, previously locked Ether (ETH) will gradually become liquid for the first time since December 2020. 

According to on-chain Etherscan data, over 16.6 million ETH is currently locked in the PoS staking protocol, which was valued at $28 billion on Feb. 16, 2023. Ethereum’s move from proof-of-work (PoW) to PoS has started to achieve the original goal, which was to make Ether’s supply deflationary. In the 154 days since the Merge, over 24,800 ETH has been burned to make the token 0.05% deflationary on a yearly basis.

Key Ether stats since the Merge. Source: Ultra sound money

On. Feb. 16, the total Ether supply sits at 120 million, meaning that a little over 10% of the supply will be unlocked, with yield rewards starting with the Shanghai update.

Let’s explore what on-chain metrics can help identify what may happen during the Shanghai upgrade.

A portion of locked ETH is liquid thanks to liquid staking derivatives

In order to benefit from yield rewards before the Shanghai update, investors had to lock their ETH and run a reliable node. The minimum staking requirement of 32 locked ETH is entirely illiquid, meaning traders had limited utility options for these coins.

Liquid staking derivatives (LSD) allow users to benefit from staked Ether while retaining the ability to sell the derivative token received on the secondary market. The LSD protocols took a fee and locked the native Ether, giving users another token that represents a stake in the pool.

Liquid staking derivatives did not gain prominence until Lido and other protocols began to see a rush of cash flow after the Merge. Since Ether staking began, liquid staking has surpassed illiquid staking. As of Feb. 13, 57% of staked Ether is liquid versus 43% illiquid.

Liquid vs. illiquid staking. Source: Binance

Since a majority of the locked Ether is through LSD, investors currently have access to liquidity, which could reduce sell pressure post-Shanghai.

Very few stakers are in profit

Back in December 2020 when Ether staking opened, the price of Ether ranged from $400 to $700. Conversely, many investors began staking when Ether was near its all-time high of $4,200. According to Binance:

“We note a sizable amount of ETH (around 2M) was staked at prices in the US $400–700 range — this represents the earliest stakers in Dec 2020 — a group that is likely illiquid given that liquid staking was far less known at the time.”

Because of Ether’s 69% correction since hitting an all-time high, many of the investors who staked their Ether are currently at an unrealized loss.

Price when staking occurred. Source: Binance

The minority of stakers who are in profit are likely to be strong believers in the Ethereum network since the date for liquidity was still unknown at this time. With a large number of stakers at a loss and those who are profitable likely to be long-term investors, Ether’s price may not see a massive dump when the tokens are able to be unstaked.

Lido overtakes solo stakers

On Jan. 2, 2023, Lido officially overtook MakerDAO as the highest total value locked in decentralized finance. As of Feb. 13, Lido is also the largest staking entity in Ether. With over 5 billion ETH staked in Lido, the protocol represents 29.2% of all entities. Notably, almost 30% of all stakers have the option for current liquidity through Lido.

Solo stakers who run nodes took a risk to run nodes from home or with a small group. Solo stakers likely believe that Ether is a long-term currency since nodes carry cost and risk. Solo stakers currently make up 24.9% of all stakers.

Staked Ether by entity. Source: Binance

With nearly 55% of all staked Ether being held by either solo stakers or Lido, the risk of an Ether price dump may be reduced.

While the on-chain data surrounding the Shanghai fork may be bullish for the Ethereum network, some analysts are still predicting the potential for a sharp downside in Ether’s price.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Ethereum price risks 20% correction amid SEC’s crackdown on crypto staking

Ethereum may experience a drop in user activity alongside ETH price with crypto staking in the crosshairs of the SEC.

Ethereum's native token, Ether (ETH), saw its worst daily performance of the year as the U.S. Securities and Exchange Commission (SEC) stopped Kraken, a cryptocurrency exchange, from offering crypto staking services.

On Feb. 9, Kraken agreed to pay $30 million to settle the SEC's allegation that it broke securities rules by offering crypto staking services to U.S. retail investors.

The news pushed down the prices of many proof-of-stake (PoS) blockchain project tokens, in particular. Ethereum, which switched to a staking-based protocol in September 2022, also suffered as a result.

On Feb. 9, ETH's price plunged nearly 6.5% to around $1,525, the largest single-day decline since Dec. 16 of last year.

ETH/USD daily price chart. Source: TradingView.com

Will Ethereum staking survive the SEC crackdown?

The SEC's crackdown on crypto staking begins as Ethereum awaits the release of its key network upgrade, dubbed Shanghai, in March. 

The update will finally allow Ether validators — entities that have locked approximately $25.6 billion worth of ETH tokens in Ethereum's PoS smart contract — to withdraw their assets alongside yield rewards.

As a result, multiple analysts, including Bitwise Asset Management's Chief Investment Officer, Matt Hougan, consider Shanghai a bullish event for Ether.

"Today, many investors who would like to stake ETH and earn yield are sitting on the sidelines. After all, most investment strategies can’t tolerate an indefinite lock-up," wrote Hougan in his letter to investors in January, adding:

"So, most investors stay out of the market. But once that indefinite lock-up is removed, the percentage of investors willing to stake their ETH will explode."

But doubts have been emerging about the future of crypto staking in the U.S., with Brian Armstrong, the CEO of Coinbase crypto exchange, fearing that the SEC would ban staking for retail investors in the future.

Moreover, some analysts argue that the ban of Ether-staking services will force users to move away from Ethereum.

Notably, Ethereum requires stakers to deposit 32 ETH (~$50,000) into its PoS smart contract to be a validator. As a result, retail investors often use third-party staking services that pool smaller amounts of ETH to enable validator status. 

"If the SEC bans crypto staking for the public, then a majority of Ethereum validators will have to come down," argues independent analyst Ripple Van Winkle, adding:

"Because you need 32 ETH to stake. Which means the ETH network is going to experience issues."

ETH price sees bearish rejection

From a technical perspective, Ether price is positioned for a potentia 20% price correction in February.

Related: Bitcoin price hits 2-week low amid warning $22.5K loss means fresh dip

Notably, on the daily chart, ETH price has been undergoing a pullback move after testing its multi-month descending trendline as resistance. It now holds the 200-day exponential moving average (200-day EMA; the blue wave) near $1,525 as support.

ETH/USD daily price chart. Source: TradingView

Ether risks dropping below the 200-day EMA support wave owing to its negative market fundamentals. Such a scenario includes the next downside target at $1,200, which coincides with a multi-month ascending trendline support.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Ethereum price technicals hint at 35% gains versus Bitcoin in 2023

Ethereum market dominance has doubled since the lunch of its staking contract in December 2020 as ETH price eyes levels not seen in five years versus Bitcoin.

Ethereum’s native token, Ether (ETH), could grow by 35% versus Bitcoin (BTC) this year to hit 0.1 BTC for the first time since 2018 as it forms a classic bullish continuation pattern.

Ethereum price must first break key resistance

Dubbed an ascending triangle, the pattern forms when the price fluctuates inside a range defined by rising trendline support and horizontal trendline resistance. It typically resolves after the price breaks out in the direction of its previous trend.

On a weekly chart, the ETH/BTC pair has been painting an ascending pattern since May 2021. The Ethereum token eyes a breakout above the pattern's horizontal trendline resistance near 0.0776 BTC. Breaking this level could then see the price rally by as much as the triangle's maximum height. 

In other words, the ETH/BTC pair could reach the next big resistance level at 0.1 BTC in 2023, or 35% from the current price levels.

ETH/BTC weekly price chart. Source: TradingView

Nonetheless, it is important to mention that ETH/BTC has attempted to break above the triangle's resistance trendline eight times since May 2021. The attempts included two major  breakouts in November 2021 and September 2022, which saw the pair rallying 14% and 9%, respectively.

Both rallies fizzled out inside the 0.082 to 0.085 BTC area, followed by extreme price corrections that took ETH/BTC back inside the triangle range. Given this multi-year hurdle, the pair could face stiff resistance inside the 0.082 to 0.085 BTC range, even if it breaks above the triangle. 

Such a move would risk crashing ETH toward the triangle support, which coincides with its 50-week exponential moving average (50-week EMA), represented by the red line in the chart above, near 0.070 BTC, down nearly 6% from the current price levels. 

ETH "deflation" narrative

Ether’s bullish setup versus Bitcoin appears as ETH dominance has doubled versus other crypto assets in the past few years. 

Notably, ETH’s market capitalization has risen to nearly 20.5% of the entire crypto market valuation in January 2023, from about 10% in December 2020, when the Ethereum network started its transition from proof-of-work (PoW) to proof-of-stake (PoS) with the launch of a dedicated staking smart contract.

ETH.D weekly performance chart. Source: TradingView

Becoming a PoS blockchain has brought two key changes to Ethereum’s economy. First, users temporarily lock away a portion of their Ether holdings into Ethereum’s PoS smart contract to earn yield. And second, the Ethereum network has started burning some transaction fees.

Related: Ethereum ‘shark’ accumulation, Shanghai hard fork put $2K ETH price in play

Both changes have had a deflationary impact on overall supply. As a result, the Ethereum network now regularly produces fewer Ether tokens than are taken out of circulation, which theoretically makes ETH a “deflationary” asset.

ETH supply change since the Ethereum PoS upgrade in September 2022. Source: UltraSound.Money

The ETH/BTC price has grown nearly 250% since December 2020 despite still being down roughly 50% from its all-time highs witnessed in 2017. 

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Bitcoin vs Ethereum: Community split between capped supply and deflationary model

Bitcoin proponents argued that Ether's monetary policy has changed at least seven times while BTC has seen zero changes.

Bitcoin (BTC) and Ether (ETH), the top two cryptocurrencies by market capitalization have always been pitted against each other. With the start of the new year, the first debate has surfaced comparing BTC’s capped supply of 21 million and ETH's deflationary supply and which of the two qualifies as more sound money.

An Ethereum-focused Twitter handle called ‘ultra sound money’ compared the issuance supply of both crypto and suggested that “if capped-supply BTC is sound then decreasing-supply ETH is ultrasound.”

The comparison between the two didn’t sit well with Bitcoin proponents who were quick to point out that soundness comes from the credibility of the monetary policy and not an ever-changing one. Dan Held, a popular Bitcoin proponent pointed out the flaw in the argument and noted that a constantly changing one has less credibility. He said:

“Time builds trust with humans, it’s not all about code. According to your logic, if we spun up another crypto with more deflation, that would be “sounder.”

Another Bitcoin proponent questioned the credibility of Ethereum’s monetary policy, reminding that the same monetary policy has “changed a least 11 times in its 7 years of existence.” On the other hand, Bitcoin has not changed its monetary policy in double the time eth has existed.

Ether's historical projected issuance rate, Source: ethhub

Ether became deflationary in Aug. 2021 with the introduction of the Ethereum Improvement Proposal (EIP)- 1559. The upgrade introduced a burn mechanism that automatically burns a portion of the transaction fee which decreases the overall ETH circulating supply.

In response to the argument by Alex Gladstein that said “admins" can arbitrarily change Ethereum's monetary policy, Independent Ethereum educator Anthony Sassano claimed that every change on the Ethereum network has been approved by the thousands of node operators run by community members.

Leo Glisic, founder of Maitri network said that ETH has become sound money now but BTC won’t hit cap until 2140.

Bitcoiners argument that if a network’s monetary policy can be tweaked multiple times makes it less credible comes from its own past. Bitcoin has faced similar monetary change and tweaking of the original code in the past as well. The most notable one came during the 2017 era when there was a growing demand for increasing the Bitcoin block size to accommodate more transactions per block and make it more scalable.

Related: Bitcoin steps out of 'fear' for the first time in nine months

The majority of the Bitcoin community remained against making any changes to the original code of Satoshi Nakamoto. As a result, the crypto ecosystem saw a hard fork in 2017 leading to the formation of Bitcoin Cash (BCH), a cryptocurrency with a block size of 8 MB against BTC’s 1 MB. However, today BCH is ranked 26th with very low on-chain development and is currently trading at 97% low from its all-time-high.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Ethereum’s Shanghai upgrade could supercharge liquid staking derivatives — Here’s how

Traders are contemplating what will happen to ETH price and staked Ether derivatives after the next network upgrade opens withdrawals for stakers.

The crypto market witnessed the DeFi summer of 2020, where decentralized finance applications like Compound and Uniswap turned Ether (ETH) and Bitcoin (BTC) into yield-bearing assets via yield farming and liquidity mining rewards. The price of Ether nearly doubled to $490 as the total liquidity across DeFi protocols quickly surged to $10 billion.

Toward the end of 2020 and early 2021, the COVID-19-induced quantitative easing across global markets was in full effect, causing a mega-bull run that lasted almost a year. During this time, Ether’s price increased nearly ten times to a peak above $4,800.

After the euphoric bullish phase ended, a painful cool-down journey was exacerbated by the UST-LUNA crash which began in early 2022. This took Ether’s price down to $800. A ray of hope eventually arrived in the third quarter as the market experienced a positive rally led by the Ethereum Merge narrative.

The shift to an environmentally-friendly proof-of-stake (PoS) consensus mechanism was a big step forward. The event also reduced Ether inflation post-merge. During a lead-up to the Merge on Sept. 15, 2021, ETH peaked at over $2,000. However, the bullish momentum faded quickly, turning the Merge into a buy-the-rumor and sell-the-news event.

A similar bullish opportunity could be brewing in Ether as the upcoming Shanghai upgrade scheduled for March 2023 grabs the market spotlight. The upgrade will finally enable withdrawals from Ethereum staking contracts, which are locked presently. The upgrade will significantly reduce the risk of staking ETH.

It will provide an opportunity for liquidity staking protocols to grow. The governance tokens of some of these protocols have jumped since the start of the new year as hype builds around.

There’s a possibility that the upgrade can push these tokens toward last year’s Merge highs. Moreover, Ethereum’s staking space is still in its early stages, providing a market opportunity for the growth of these protocols.

The percentage of staked Ether is low

Currently, 13.18% of Ether’s total supply is staked on the Beacon Chain, which is low compared to other proof-of-stake (PoS) chains like Cosmos Hub (ATOM) with a staking ratio of 62.5%, Cardano (ADA) with 71.8%, and Solana (SOL) at 71.4%. The reason for Ethereum’s low staking ratio is that the staked Ether is locked in its current state, but this will change in March.

Ethereum has the lowest staking ratio compared to other L1 blockchains. Source: Staking Rewards

The upcoming Shanghai upgrade will include a code known as EIP 4895 that will allow Beacon Chain staked Ether withdrawals, enabling a 1:1 exchange of staked Ether for Ether. Ethereum’s staking ratio should reach parity with other leading PoS networks after this update. A significant portion of which will likely move to liquid staking protocols.

De-risking of liquid staking derivatives

Liquid staking protocols like Lido and Rocket Pool let Ether holders stake without running a validator node. Since Ether is pooled, a single user doesn’t have a minimum threshold of 32 ETH (worth around $40,000) for staking. People can stake fractions of Ether, reducing the entry barrier for staking.

The protocols also enable liquidity provision for staked assets, which would otherwise be locked in the staking contracts. The DeFi contracts give a derivative token (for instance, Lido’s stETH) in exchange for staked Ether on the proof-of-stake (PoS) network. A user can trade with stETH while earning yields from the staking contract.

As Ethereum’s staking ratio increases after March’s update, the use of liquidity staking protocols will likely increase with it. Currently, the liquid staking protocols account for 32.65% of the total staked Ether. Due to the benefits mentioned above, their market share should remain near or above current levels after the Shanghai upgrade.

The governance tokens of liquid staking protocols could also benefit from their increased locked value, similar to DeFi tokens, which benefited from a rise in total locked value (TVL) in the latest bull run.

How are LSD governance tokens performing ahead of Shanghai?

Lido DAO (LDO)

Lido DAO is the leader of the liquid staking space with higher annual yield and market share than other protocols. Lido commands 88.55% of the total staked Ether in these protocols.

Let's take the amount of staked Ether as a proxy for evaluating the protocol. We again find that Lido has the most competitive market capitalization to staked Ether ratio.

Source: Coingecko, Dune Analytics

The weak point of the project’s token economics is that LDO is a governance token. It doesn’t entitle holders to a share of the generated yield or fees. Moreover, the token has additional inflation from investor token unlocking until May this year.

LDO 4-hour price chart. Source: TradingView

Technically, the LDO token broke above the short-term resistance of around $1.17 with significant buying volume. Bulls will likely target $1.80, capitalizing on the hype around the Shanghai upgrade.

The token is heavily shorted in the futures market after the recent 26% rise in its price since Jan. 1. The funding rate for LDO perpetual swap turned negative with a large magnitude, providing an opportunity for a further uptrend in a short-squeeze. The current support levels for LDO are $1.17 and $1.

Rocket Pool (RPL)

Rocket Pool is similar to Lido, albeit smaller in size. The market capitalization to the staked Ether ratio of the platform is five times larger than Lido, which likely makes it overpriced.

Nevertheless, the RPL token has additional utility besides governance as an insurance token for users. Node operators stake RPL as insurance, where users receive the staked RPL in case of losses due to the operator's fault.

The Ethereum Merge high of RPL in September 2021 was $34.30. Since the start of 2023, its price has increased by 10%, last trading at $22.40. If buyers are successful in building support above the $20 level, there's a possibility that RPL can reach last year’s high of $30, which was attained around the Ethereum Merge.

Ankr (ANKR)

Ankr is a blockchain infrastructure provider which offers API endpoints and runs RPC nodes besides staking solutions. Similar to LDO, ANKR is only used for governance purposes.

The token’s price has stayed relatively flat over the last few days. The market capitalization to the staked Ether ratio of Ankr is on the higher side at par with Rocket Pool, which is a negative sign.

Still, if the hype around Shanghai upgrade increases, ANKR can reach August 2021 highs of $0.05. The recent breakdown level of $0.03 will act as resistance for buyers. Currently, the token is trading around $0.015.

Stakewise (SWISE)

Stakewise offers the highest staking yield of 4.43%. Its governance token is comparatively less inflated than RPL and ANKR in the market capitalization to staked Ether ratio, making it cheaper than RPL and ANKR.

However, the token distribution is adversely skewed towards private investors and the founding team, which have 46.9% of SWISE’s total supply. According to data from Nansen, wallets identified as “smart money” have been slowly accumulating SWISE since April 2021.

Smart wallet holdings of SWISE tokens. Source: Nansen

The Ethereum Merge high for SWISE was $0.23, which will be the likely target for buyers. The support lies near 2022-lows around $0.07.

Shared Stake is flagged red because the protocol was suspected of an insider exploit, which caused a 95% decline in the token’s price in June 2021. The high staking return of the Shared Stake compared to others is also an eyebrow-raising detail to take note of. On the other hand, Cream Finance has discontinued its Ether staking service.

The upcoming Ethereum Shanghai upgrade provides an opportunity for the liquid staking space to grow. Lido DAO is the clear leader in this space with an optimum market price. The de-risking of ETH staking and hype around the event could translate to a series of rallies that could push the price of LDO and other liquid staking protocols back to their Merge highs from last year.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

5 altcoin projects that made a real difference in 2022

2022 was tough on crypto prices, but ETH, LDO, MATIC, DAI and ATOM all made a positive impact on the industry.

Bitcoin (BTC), Ether (ETH) and the crypto market had a rough 2022 from a price perspective, but traders are hopeful that 2023 will include bullish developments that push crypto prices higher. 

Despite the market-wide downturn, a handful of altcoins continued to make a positive contribution to the crypto space and thanks to Ethereum, the term altcoin is no longer a derogatory term.

Let’s explore the top altcoins that made a difference in 2022.

Ethereum fundamentals shone in 2022

Ether’s price hit a yearly high at $3,835 on Jan. 2 and has struggled to regain footing amidst the bear market and other macro factors. The Ethereum network is the top project in 2022 not because of Ether’s price action, but for its fundamentals and for completing the long-awaited mainnet upgrade. The Ethereum merge was completed on Sept. 15, 2022 and while many feared the merge to proof-of-stake (PoS) could cause issues, the transition was flawless.

The main advantage of PoS is that it is much more energy-efficient than proof-of-work (PoW) because it does not require expensive and energy-intensive hardware to validate transactions. This reduces usage costs for the end user and makes it a more sustainable and scalable solution for Ethereum's long-term growth. The Merge also reduced the Ethereum network’s energy consumption by over 99.9%.

Some analysts are bullish on Ether post-Merge due to its emissions schedule becoming deflationary. Although daily active users have increased for the network, emissions have remained inflationary and Ether price is still down from yearly highs.

In 2023, investors are hopeful that increased transactions on the network creates higher demand for Ether and that this translates to a boost in the altcoin’s price.

Lido (LDO) brought Ethereum network staking to the masses

Lido’s makes it easy for users to participate in Ethereum PoS as validators by providing a simple interface for betting without having to reach the high threshold the network requires to stake.

Since launching, Lido has earned $158.8 million in fees from their staked Ether protocol. At the peak, Lido saw 823 daily active users on Sept. 17.

Cumulative Lido fees and daily active users. Source: TokenTerminal

With the Ethereum network Shanghai hard fork scheduled for March 2023, Lido will have a busy Q1 and all the Ether staked in the platform will have the option of being withdrawn. Aztec Connect, the creator of Lido protocol also recently secured a $100 million fundraising round to build an encrypted blockchain.

Polygon partnerships show long-term resiliency

Mass adoption requires traditional companies and brands to get involved in crypto. Polygon (MATIC) has a major focus on partnerships and some of the relationships developed in 2022 include Warner Music, JP Morgan, Instagram and Warren Buffett’s Neobank.

These partners use Polygon in various ways, including integrating the Polygon network into their infrastructure and using Polygon to offer distributed ledger technology (DLT) for their products and services.

Notable companies, including Cointelegraph, also chose to launch NFTs on Polygon. In addition to Cointelegraph, former President Donald Trump, Reddit, DJ Deadmau5 and Nike all launched NFT collections on Polygon.

Some traders expect a 200% upside swing from MATIC due to on-chain metrics showing traction and bevy of future partnerships. Despite all of Polygon’s growth, the Ethereum network still intakes more fees.

Daily fees comparing Polygon (Orange) and Ethereum (Green). Source: TokenTerminal

Polygon’s focus on Web3’s core principles combined with their partnerships, earned them a spot as a top altcoin project in 2022 .

MakerDAO’s DAI proves resilient

In a year that saw algorithmic stablecoins de-peg and perish, Dai (DAI) has shown resilience. Unlike centralized stablecoins, DAI is a decentralized stablecoin that provides transparency, censorship resistance, and the ability to operate outside traditional financial systems.

While DAI is not new to the crypto space, the decision to increase exposure in low-risk assets such as treasuries and bonds earns them a spot as a top altcoin. According to an analysis from Sebastien Derivaux, a crypto scholar, this decision generated 75% of all DAI revenues (600 million.)

Cosmos upgrades attract institutional investors’ attention

In 2022, Cosmos (ATOM) focused on solving the interoperability and communication challenges that exist between different blockchains. On Jan. 1, Cosmos had 74 active developers and this figure more than doubled, reaching a peak of 154 on Nov. 30.

In a year plagued with cross-chain casualties, Cosmos’ inter-blockchain communications protocol (IBC) has so far seemingly weathered the storm. The success caught the eye of Delphi Digital’s research arm and fund managers at VanEck.

Cosmos fees and developer activity. Source: TokenTerminal

Overall, Cosmos has the potential to be an important infrastructure layer for the crypto ecosystem, helping to facilitate the exchange of value and information between different blockchain networks and enabling a more interoperable future.

While 2022 is a year most crypto investors would like to forget, positive factors in mass adoption arose. The altcoins with a focus on building will continue to propel crypto’s future in 2023 and beyond.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say