Cryptocurrency market traders and analysts fear that the Shapella hard fork of Ethereum will cause volatility in the altcoin markets as validators start to exit, albeit in a controlled manner. Adding to this mix of unexpected effects is the release of US Consumer Price Index (CPI) data for the month of March.
Bitcoin and cryptocurrencies are likely to rise if the price of the basket of goods and services shows signs of cooling.
ETH traders prepare for potential cryptocurrency market volatility
The Shapella hard fork Ethereum (ETH), which is a combination of a Shanghai execution layer upgrade and a consensus layer upgrade called Capella, will be launched in block 6209536 on April 12.
The upgrade will enable validators who place ETH on the network’s consensus layer to help secure the network to withdraw their funds.
Anyone can lock 32 ETH into a smart contract to confirm and broadcast blocks of transactions after Ethereum changes from a proof-of-work blockchain to a proof-of-stake chain in September 2022. They can earn up to 5% interest as a reward for doing the work.
ETH price on the day was mostly flat, around the $1870 mark, which indicates that traders may be preparing for a possible selling pressure that could affect the ETH and altcoin markets.
A report by K33 Research indicates that speculators can withdraw 1.1 million ETH in the form of staking rewards. Bonuses can be withdrawn immediately after the upgrade and liquidated using a centralized exchange. The user will remain validated after this partial checkout.
A full withdrawal, which can take up to 60 days in some cases, will remove the validator’s original 32 ETH plus any accrued rewards. The node operator will then cease to be a validator.
Bankrupt cryptocurrency lender Celsius is also set to withdraw about 158,000 of its ETH heap to recover funds to creditors.
These two withdrawals would amount to $2.4 billion in selling pressure, roughly a quarter of the 24-hour trading volume of ETH.
Of the top 10 cryptocurrencies by market capitalization, 90% of them have been underwater in the past 24 hours. Dogecoin (DOGE), Cardano (ADA), Binance Coin (BNB), and Polygon (MATIC) are down more than 3%.
Lower US CPI is likely to push altcoins higher
The release of US CPI figures later today is likely to cause volatility in the Bitcoin (BTC) market. Investors tend to mine economic data for clues about the Fed’s easing of monetary policy.
Analysts expect US CPI to come in at an annualized 5.2% for March, down 0.8% from 6% in February. Month-on-month inflation is expected to be half of last month’s rate of 0.2%.
If this finding proves correct, Bitcoin’s gains could continue to outpace the Nasdaq and gold. On April 10, bitcoin was up 4.5%, while the Nasdaq and gold were down 0.1% and 0.9%. According to K33 Research, the Bitcoin pump was likely caused by CME traders mixing their exposure to BTC.
Bitcoin’s seven-day daily spot trading volume reached $2.8 billion on April 10, 2023, the lowest trading volume in almost a year. BTCUSDT perps saw volume spikes in a short period as bitcoin surged above $30,000.
Signs that the Federal Reserve will pause or reduce interest rate hikes likely mean that derivatives volume will push bitcoin above $30,000.
While bitcoin’s relationship with traditional finance is declining, positive CPI news could see it outperform other crypto market indices.
The correlation between Bitcoin and altcoins also indicates that a positive BTC response will drive altcoin prices higher.
For a recent Be (In) Crypto Bitcoin (BTC) analysis, click here.
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