Ether Surges To 11-Month High Despite $2B In Pending Withdrawals

Ethereum’s long-awaited Shapella upgrade went over a day ago, yet there are no signs of the havoc some analysts predicted would ensue once staked Ether could be withdrawn.

Ether defied expectations that a sudden flood of post-Shapella selling pressure could drive down the asset’s price, rallying 10.5% in the 24 hours following the upgrade. ETH last changed hands for $2,100, its highest level in 11 months.

Ethereum’s bullish price action came in spite of the network processing a meaningful number of withdrawals, with 110,525validators removing 221,253 ETH ($445.6M) since the upgrade, according to Beaconcha.in. Staked Ether withdrawals were activated as part of Thursday’s Shapella upgrade, roughly 28 months after staking first launched.

Meanwhile, deposits surged Friday and began to outpace withdrawals, according to Nansen, though the total amount of staked ETH remains below its pre-Shapella high.

“It seems like we’re reaching a kind of equilibrium faster than expected,” Nansen analyst Andrew Thurman told The Defiant. “There are still very high net withdrawals, but the withdrawals are slowing in pace, and deposits are still coming in pretty hot. I expected that process to take weeks, maybe even months, and it looks like we’re heading towards supply hitting a sort of trench and maybe even picking up again sooner than anticipated.”

According to Token Unlocks, 330,310 validators are waiting to make partial withdrawals, while 18,640 will entirely exit their positions, equating to 974,700 ETH ($2B) currently in the queue. Withdrawals are limited to 1,800 daily, or around 58,000 ETH, slowing the rate at which validators can exit.

Kraken, the centralized exchange that agreed to wind down its custodial staking service after settling a lawsuit from the U.S. Securities and Exchange Commission in February, accounts for 63% of pending withdrawals.

Validators Withdraw To Re-stake Rewards

Data from Token Unlocks shows that 95% of withdrawn ETH comprised accumulated rewards as of Thursday evening New York time, meaning just 5% of stakers pulled out their initial deposits.

Darren Langley, general manager of Rocket Pool, told The Defiant that many validators would withdraw their accumulated Ether rewards with the intention of staking the coins to earn additional yield after Shapella’s activation.

“While there may be some short-term selling pressure in the market, it is likely that the majority of operators will choose to re-stake,” he said.

Langley added that validators might also choose to sell off a portion of their rewards to cover their tax obligations.

Loss Aversion

Mark Monfort, the director of web3 venture firm, NotCentralised, was skeptical of the theory that Ethereum stakers would exit en masse, arguing that many stakers deposited Ether at higher prices and were unwilling to realize a loss.

“With the current price of Ether lower than when many users staked their funds, it’s also possible that these holders may not want to sell at a loss, which could limit the impact on the market,” Montfort told The Defiant.

According to Dune Analytics, 70% of ETH stakers paid above the current price of Ether to accumulate their stake. However, when factoring in accrued rewards, 48% of stakers remain unprofitable.

The average price staked Ether was purchased for is $2,136, according to Nansen.

Thurman doesn’t think sell pressure will surge in the event the Ether rallies past $2,136.

“Because a lot of retail investors were staking via LSDs [such as Lido], they sort of already had the chance to sell” by selling liquid staking derivatives like stETH or rETH, he said. “But it is possible some of these larger institutional players might keep an eye on that number.”