The upcoming Shapella upgrade on the Ethereum network, scheduled for April 12th, has induced significant uncertainty among traders, according to a report by cryptocurrency market data provider Kaiko. As the upgrade will enable staked Ether (ETH) withdrawals from the Beacon Chain for the first time since its launch in December 2020, traders are taking a cautious stance ahead of the event due to the potential influx of selling pressure. Experts have estimated that the upgrade could add nearly 1.2 million to 3 million worth of ETH selling pressure in the first few weeks.
The report highlights the extent to which ETH is lagging behind Bitcoin (BTC) in spot and futures trading volumes. Furthermore, options market data shows that traders are actively adding short-term hedging positions as a precautionary measure. The ratio between Ethereum’s spot and perpetual trading volumes also reflects the lack of trading interest, as its march share in US dollar trading volume compared to Bitcoin decreased to March 2021 lows near 30%.
During Ethereum’s last big upgrade, the Merge, its market share relative to Bitcoin reached a high of 53%. The relative increase in the open interest (OI) volumes for Bitcoin has surpassed Ethereum considerably. The April 10 price surge above $30,000 saw the ratio of open interest volumes for Bitcoin and Ethereum increase significantly.
Moreover, the options market also reflects the uncertainty around the upgrade. The implied volatility for Ethereum options contracts expiring in April has trended higher than all timelines for Bitcoin. It suggests that an increasing number of traders are looking to hedge their positions. When the demand for options increases, it implies that the market expects greater price swings in the underlying asset and, therefore, higher implied volatility.
The report adds that all ETH expiries have moved closely with one another while the longer BTC expiries have remained stable, indicating that there is more uncertainty, particularly in the long term, in the ETH derivatives markets. ETH’s subdued performance compared to BTC is reflected in the two currencies’ year-to-date performance, with Bitcoin’s price increasing 82.02% compared to Ether’s 59.82% surge in the same period.
The ETH/USD pair faces resistance at $2,000 from the technical and psychological points of view. The Moving Average Convergence and Divergence (MACD) indicator, a momentum oscillator, has remained flat through Ether’s latest price rise, showing a lack of bullish momentum. It implies that the potential downside risks remain high for the current consolidating trend that ETH has taken.
Ethereum’s falling market share compared with Bitcoin and muted trading interest relative to the Merge highlights the uncertainty in the market due to potential selling pressure after Shapella. The lack of trading volumes and high options implied volatility can induce significant price volatility over the course of the month, especially when considering that the sell pressure is expected to last for three to eight weeks after the upgrade.
Despite these uncertainties, the Shapella upgrade could bring institutional investors to Ethereum, as previously reported by Cointelegraph. However, it also carries risks that institutional investors will need to factor into their trading decisions. It is essential to remember that every investment and trading move involves risk, and readers should conduct their own research when making a decision.
In conclusion, the upcoming Shapella upgrade on the Ethereum network has induced significant uncertainty among traders, as ETH’s market share in US dollar trading volume compared to BTC declines to lows last seen in March 2021. The relative increase in open interest volumes for Bitcoin has surpassed Ethereum considerably, showing that ETH is lagging behind BTC. The options market also reflects uncertainties, as the implied volatility for Ethereum options contracts expiring in April has trended higher than all timelines for Bitcoin. The lack of trading volumes and high options implied volatility can induce significant price volatility over the month, especially when considering that sell pressure is expected to last for three to eight weeks after the upgrade.
