Ether rose to a nine-month high this week, ahead of a serious network upgrade that some cryptocurrency enthusiasts consider will make the digital currency a more viable long-term investment.
The world’s second-largest cryptocurrency has surged around 6% over the past three days to surpass $1,900, while Bitcoin is roughly flat along this stretch.
Starting next Wednesday, a blockchain update dubbed “Shapella” will allow ether owners to withdraw their assets. Until then, investors would need to use centralized exchanges equivalent to Coin base or decentralized finance (DeFi) protocols equivalent to Lido to essentially exchange your locked ether for a token of equivalent value.
The recent rally followed the same pattern to previous network upgrade bouts. In September, Ethereum overtook a historic shift to a more energy-efficient way of securing the network, called proof-of-stake.
Ethereum
previously had an intensive network of miners across the planet, operating highly specialized computers that processed mathematical equations to validate transactions. After the so-called “Merge” update in September, ethereum switched to a proof-of-stake system, replacing miners with validators. As an alternative of serving large banks of computers, validators use the existing ether cache as a method to confirm transactions and create latest tokens.
“Ether itself becomes a producing asset,” said Danny Ryan, a researcher at the Ethereum Foundation, in reference to the September update. “It isn’t something you possibly can just speculate about, but something that will be profitable.”
In the post-merger era, ether took on a few of the characteristics of a conventional financial asset, paying interest to its holders.
“This might be the lowest-risk return in the Ethereum ecosystem,” Ryan said, adding that profit elsewhere in DeFi includes smart contracts and other counterparty risks.
Ether has performed poorly to date this 12 months bitcoins, but recent gains have helped close the gap. Ether is up nearly 59% this 12 months, in comparison with Bitcoin’s 70% growth in 2023.
Currently, over 18 million ether tokens valued at roughly $32.5 billion, meaning that 15% of the total ether supply is taken into account locked-in assets.
While the upcoming update will unlock much of this value, giving holders more control over their assets, there are some concerns that issuing so many tokens may have a form of flood effect in the market. Even with limited payouts, some $2.4 billion price of ether could hit the open market, K33 Research said in a note on Tuesday.
“A pointy drop is more likely to occur soon after the update is complete as an enormous amount of ETH will probably be unlocked and lots of people may also sell their ETH,” said Ilya Volkov, who runs a blockchain-based fintech platform. Volkov said he’s optimistic in the long run.
The ratio of open interest in ether puts and calls hit its highest level since May on Tuesday, in response to data provided by crypto data analytics and news firm The Block. This might signal a buildup of bearish bets resulting in a network upgrade.
Based on research by Bernstein, of the 18 million ether tokens locked in the blockchain, nearly 70% are staked via protocols like Lido, making a measure of liquidity for investors.
“Liquidity for 70% staked ETH is nothing latest, they may do it anyway,” Bernstein wrote. The corporate described the remaining 30% of holders as “original believers” who’re unlikely to go away their positions at this price.
The power to deposit and withdraw tokens could encourage more investors to bet on ether, with some analysts saying they expect a big influx of capital into the network once it proves that the money staked will be withdrawn relatively easily.
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