Ethereum’s ether cryptocurrency rose to a nine-month high ahead of a major network upgrade, with enthusiasts arguing that the change will make it a better long-term investment than bitcoin. Ether rose about 6% to over $1,900 over the past three days, while bitcoin remained relatively flat. The “Shapella” blockchain upgrade will let those who own ether withdraw their assets, instead of relying on exchanges to exchange their locked-up ether for equivalent value tokens. This will make ether a productive asset, enabling it to provide returns for investors, according to Danny Ryan from the Ethereum Foundation.
Analysts have some concerns about flooding in the ether market from the release of many tokens once the upgrade is completed, with $2.4bn worth of ether expected to hit the open market. Although there may be a short-term dip immediately following the upgrade, some analysts expect a significant influx of capital onto the network. 18 million ether tokens worth about $32.5bn are currently locked on Ethereum, with 70% staked through protocols like Lido. Bernstein research suggests that the remaining 30% are “original believers”, who are unlikely to exit their positions. The deposit/withdraw function is expected to encourage more investors to stake ether.
Ethereum previously relied on miners running specialised computers to validate transactions, but since the September “Merge” upgrade, validators have used their existing cache of ether to verify transactions and mint new tokens; ether now pays interest to holders. Though ether has underperformed bitcoin so far this year, it is closing the gap with gains of almost 59% compared to bitcoin’s 70%. Analysts have seen the increase in the ratio between the open interest of ether put and call options as a signal of bearish bets ahead of the network upgrade.
Analysis suggested that the release of so many tokens was likely to lead to a plunge in ether prices. However, Ilya Volkov, from a blockchain-based fintech platform, remained bullish over the longer term, believing that the ability to withdraw tokens would encourage more investors to use the network.