Welcome to The Node. This is Daniel Kuhn and Prachi Vashisht, here to take you through the latest in crypto news and why it matters. In today’s newsletter:
Wednesday’s highly anticipated Shanghai upgrade (aka Shapella), which enables the withdrawal of locked up staked ether, is a step forward for the Ethereum network and acts as a precursor for future upgrades, Bank of America said in a recent research report. However, the upgrade fails to address Ethereum’s longstanding scalability and throughput issues in the short term, the analysts said. Although the upgrade is being viewed as a “significant technological accomplishment,” Ethereum is still not necessarily more advanced than “next-generation blockchains” and still faces increasing competition.
Two Ways
JPMorgan said in a research report last week that recent U.S. bank failures “exposed the weaknesses of the traditional financial system” and set bitcoin up as a hedge for “catastrophic scenarios.” Crypto has, at least partially, been “vindicated,” the report said. The major bank further said there is rising support for bitcoin ahead of next year’s halving event, scheduled for April 2024. Meanwhile, the Group of Seven (G-7) advanced nations are looking at central bank digital currencies (CBDC) as a way to assist developing countries, Japan's senior financial diplomat Masato Kanda said at Tuesday's Macro Week 2023. The diplomat pointed to the FTX collapse as a serious wakeup call for the need for consistent crypto regulation across borders.
Tokens Rendered
Ren Protocol, a once-popular DeFi platform acquired by Alameda Research before the Sam Bankman-Fried-founded hedge fund went bankrupt, will transfer all of its assets to FTX-controlled cold wallets ahead of a potential shutdown, according to a Wednesday tweet. The protocol, acquired in February 2022, will send bitcoin, dogecoin and other cryptocurrencies as well as “shares” to separate, segregated accounts from those used for other FTX debtors, Ren claimed. Elsewhere, Tron’s TRX token will soon be delisted from Binance.US. The exchange did not explicitly mention the U.S. Securities and Exchange Commission multipronged lawsuit against Tron founder Justin Sun and his many companies, but did note it was taking into consideration “market and regulatory developments.” TRX trading ends on April 18.
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Sound Bites
"We do think [Shanghai] is actually a game changer."
– RockX CEO Zhuling Chen, on Ethereum's coming upgrade, on CoinDesk TV's "First Mover"
The Takeaway: Ethereum, Explained
Ethereum is set for its largest upgrade since the Merge, when the most-used crypto network fully transitioned to proof-of-stake. The Shanghai upgrade, also known as Shapella, will finally enable users to unlock their staked ether (ETH) – some of which has been locked up since the “deposit contract” went live in 2020.
Many predict this event could force major selling pressure on ETH. Others say this is just the impetus Ethereum needs to regain institutional interest, as unstable ETH rewards (paid to “validators” who stake their assets to secure the network) could be treated as something like Ethereum’s risk-free rate. In either case, the situation is like anything else in crypto – where it likely made sense to buy ETH weeks or months ago rather than now because many will “sell the news.”
Of course, time will tell. CoinDesk has published a number of explainers, guides and articles all about Shanghai and what it could mean for Ethereum going forward. Here’s a quick roundup in case you need to get up to date:
The Shanghai hard fork has been a long time coming. But so has the Capella update. If you’re confused about the nomenclature, CoinDesk tech reporter Margaux Nijkerk has you covered with this account of how both upgrades came to be and what exactly they’ll do. “Technically the Shanghai upgrade is only on the execution side of Ethereum. Capella is the simultaneous upgrade happening on the consensus side,” she writes. Also check out Nijkerk’s “What’s Next After Ethereum’s Shanghai Upgrade?” to get a sense of all the updates Ethereum developers still plan to make – including the Verge, the Purge, the Scourge and “danksharding.”
Hosts of flagship CoinDesk TV show "First Mover" discuss the basics of the Shanghai upgrade, expected to take place at 22:27 UTC (6:27 p.m. ET). Part of the conversation, as mentioned, is whether this is a moment to buy or sell the news. Later, Casa CEO Nick Neuman joins to discuss the importance of crypto self-custody. Incidentally, self-custody of ETH is at above average levels, suggesting that many holders are planning to sell their holdings for fiat on crypto exchanges.
Given the momentous occasion, the Ethereum community plans to celebrate the Shanghai upgrade. CoinDesk tech reporters Margaux Nijkerk and Sage D. Young give a concise rundown of public watch parties as people gather around to see who will be first to unlock their staked ETH. The reporters also give an overview of the analytics tools you can use to watch the event in real time – from Etherscan to open-source Ethereum explorer beaconcha.in. “Look out for epoch 194,048, which is when Shanghai will be triggered,” they write.
“Analysts differ on the amount of ETH selling pressure that could result from the Ethereum blockchain’s Shanghai upgrade, scheduled for later today,” CoinDesk’s Will Canny writes. JPMorgan, for instance, said because some 1 million in ETH staking rewards will soon be available to sell – many will. Coinbase analysts think this “mass sell-off” is overstated. And Bank of America is a bit ambivalent, though looking towards historic price action following the Merge and predicts increased trading volatility, in part due to rising exchange inflows and derivatives trading that typically follows any big announcement.
On-chain analytics firm Glassnode estimates that something like 170K ETH are “intended to be sold after the Shanghai upgrade” though thinks only 100K ETH may ultimately be “withdrawn and sold.” This is based on a “50% withdrawal credential update, our segmentation of depositors, and assumptions regarding investor conviction, and profitability,” according to Glassnode. Relatedly, Amphibian Capital’s James Hodges looks at other on-chain indicators suggesting many Etherans are planning to hold rather than sell their assets (including that the vast majority of ETH holders would be selling at a loss). Hodges further claims the Shanghai update will “permanently alter” ETH’s economics, and gives a sense of the “risk-free rate” claim.
A Little-Known Stablecoin Gets Big Help From World’s Largest Crypto Exchange (WSJ – paywalled)
How major Bitcoin mining pools calculate pay-per-share (Protos)
Twitter will be added to dogecoin Ponzi scheme litigation if Elon Musk cannot get case dismissed (The Block)
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ETH's Owners
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