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Could Underwater ETH Speculators Become a Threat to the Cryptocurrency Market?

With the blockade of Ethereum (ETH) increasing, there are growing fears in the community that losing investors could cause the prices of the second largest crypto network to fluctuate.

The Ethereum Merge Upgrade was one of the most important events to happen in the crypto industry. The upgrade is set to address critical Ethereum network issues such as scalability, security, and high fees.

It also introduced many new features, such as caching and hashing, which enable the network to process more transactions per second.

Benefits of Ethereum Switching to Proof of Stake

The Ethereum Merge upgrade involved moving from a Proof of Work (PoW) consensus algorithm to Proof of Stake (PoS). This transition took place in several phases, with the first phase, known as the Beacon Chain, being launched in December 2020. The Beacon Chain was essentially a new blockchain that ran parallel to the then-core Ethereum blockchain and was responsible for managing the PoS consensus algorithm.

One of the main benefits of the PoS consensus algorithm is that it requires validators to share a certain amount of ETH to participate in the consensus process. Validators are rewarded with ETH for verifying transactions and can be penalized (referred to as blocks) for performing them invalid or harmful mission.

Ethereum’s Shapella (Shanghai) upgrade was successfully implemented last month. Shapella enabled pegged ETH withdrawals and effectively completed the years-long network transition to Proof of Stake. There are many ways validators can opt out, although the two main types of opt out involve partial and full withdrawals.

Zoom in on ETH Stakers

While the PoS consensus algorithm has many benefits, it also poses some risks for speculators. One of the main risks is that the value of cryptocurrency ETH could drop, leaving dealers underwater in their positions.

ETH has fallen significantly since hitting an all-time high of over $4,800 in November 2021. It is now trading back around the $1,860 mark at the time of writing.

Ethereum (ETH) price chart | BeInCrypto price

Despite the price drop, ETH holders continue to support the network. This is evident in light of the significant increase in ETH achieved since the upgrade of Shapella, also known as Shanghai. In the last 24 hours, net deposits amounted to 104,682 ETH stored on the Ethereum beacon chain.

Mortgaging ETH through principal deposits accounts 93.82% of the 18.93 million in locked ETH. Here, the betting activity outperformed the withdrawals by a large margin. But the decline in price action and the increase in the amount of risk raised some concerns among experts. According to analysts at Delphi Digitalwhich is a popular cryptocurrency search platform.

Drowning underwater

Looking into the details, the team shed some light on the “underwater” ETH meter. More than 70% of stakeholders have dropped their positions on ETH in USD terms since the bet. In fact, most of the betting on ETH occurred between $1,600 and $3,500, while nearly 830,000 ETH was staked above $4,000.

Overall, April saw the largest amount of ETH ever stockpiled in a single month.

Are speculators making a profit or a loss since ETH has been bet?  Source: Delphi Digital
Are speculators making a profit or a loss since ETH has been bet? source: Delphi Digital

As a matter of fact, this wouldn’t be the first time that the introduction of ETH has been the center of discussion. In the past, privacy and centralization concerns were two major issues.

What could happen now?

The researchers considered both sides of the coin in their analysis. Speaking of deflation, a gradual but steady flow of ETH off the network from lone pioneers would be out of the question. Moreover, if the price of Ethereum falls further, “we will see more price-sensitive stakeholders withdraw their stake and sell Ethereum.”

Delphi report note,

“One can expect a sharp price drop in ETH that will result in the cannibalization of a decent chunk of ETH. It is human nature to panic in moments like this.”

On the other hand, some can note the “limitations on network bet withdrawals and use it as fuel for a medium-term bullish thesis.” In general, this drop in prices had a great impact on dealers. For many pioneers, this means that they are now underwater in their positions and may have to wait many months or even years for the market to recover.

Some validators may have withdrawn their ETH to cut their losses, while others may not be participating in the network. This decrease in participation may weaken the security of the network due to the decrease in the number of validators.

Ultimate optimism

Despite these challenges, there are still reasons for optimism about the Ethereum Merge upgrade. It addressed some of the important issues plaguing the Ethereum network, such as scalability, security, and high fees. The introduction of hashing could enable the network to process a much higher number of transactions per second. This can help alleviate the problem of high fees.

Moreover, the Ethereum community is known for its flexibility and creativity. Many community members are working on new projects and applications that can help drive network adoption and increase the value of ETH. For example, several projects are exploring the use of Ethereum for decentralized finance (DeFi) applications, which can help increase demand for ETH.

Disclaimer

Following the Trust Project’s guidelines, this featured article features opinions and perspectives from industry or individual experts. BeInCrypto is dedicated to transparent reporting, but the opinions expressed in this article do not necessarily reflect those of BeInCrypto or its employees. Readers should verify information independently and consult with a professional before making decisions based on this content.

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