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Ethereum’s latest upgrade is slated for April 12, and its impact has divided opinion — at least between two of America’s most prominent financial institutions. 

The blockchain’s Shanghai-Cappella upgrade – dubbed Shapella – will enable withdrawals of staked ether on the network for the first time if all goes to plan. While the majority of observers expect the impact on the price of ether to be muted, JPMorgan and Fidelity analysts are divided. 

Ethereum’s native coin recently topped $1,900 and is at its highest point since last summer on the even of the upgrade. It was trading at $1,904 by 1:45 p.m. in New York, up 0.5% over the past day, according to CoinGecko data. 

Last year’s Merge made Ethereum a proof-of-stake blockchain, but staking has been a one-way system since — that’s about to change. Shapella will enable validators and users to withdraw their staked ether and any accrued staking rewards, opening up access to over 18 million staked ether. 

JPMorgan analysts said in a recent note that they expect ether will likely face “some selling pressure” as more than 1 million worth of ether staking rewards become available to validators after the upgrade.

“If one adds potential additional selling pressure from staked ether balances belonging to troubled entities, then the selling pressure could be bigger over the coming weeks,” analysts said, adding they “expect ether to underperform bitcoin over the coming weeks.”

Fidelity’s take

The impact of Shapella is more nuanced, according to Fidelity Digital Assets researchers. First, validators’ operating expenses are much lower under proof-of-stake than in the energy-intensive proof-of-work system. 

Most staked ether positions were at a loss before the recent rally put about half in the money. That’s according to a Dune dashboard that was used as Fidelity’s original reference point.

Another wrinkle, as Fidelity sees it, are liquid staking tokens and staking service providers. These tokens allow one to participate in staking, while also being able to use or sell them. A third of staked ether is already liquid through these liquid staking tokens, the Fidelity analysts noted, meaning holders have been able to exit before the upgrade. 

“With the amount of ether held by staking service providers, these entities will likely impose their timeframes at which their ether is unlocked,” the note said. 

Based on these factors and the popularity of staking leading to re-staking, the visible impact on the price of ether should be “muted,” Fidelity argues. 

Crypto natives 

The upgrade is expected to cause “some short-term market volatility,” with the long-term benefits being “substantial,” according to Chen Zhuling, founder and CEO of RockX, a blockchain node provider service. 

Ethereum will be able to handle more transactions per second, transaction costs will decrease, and the security and efficiency of smart contracts will improve, he told The Block. “With the Shapella Upgrade, the liquid staking landscape will be transformed forever, and Ethereum will become the benchmark yield for crypto.”

Riyad Carey, a research analyst at Kaiko, echoed this, saying, “short term price movements are noise that distracts from the signal of the upgrade.” Adding withdrawals will make large holders and institutions who had previously been holdouts more comfortable with staking, Carey said.

“Overall, it doesn’t seem that markets are pricing in a huge move, as ether’s implied volatility for the April 21, 2023 expiry is only 2% higher than BTC’s, while their IV for further expiries is essentially even,” he said. 

Pre-Merge a “buy the rumor, sell the news” strategy played out on-chain. Still, this time the flows have been directed towards liquid staking tokens,” Marc Arjoon, a research associate at CoinShares, told The Block. The narrative of unlocks leading to sell-side pressure could prove to be a headwind, he added, before saying, “if the price doesn’t fall materially enough to match the narrative then I presume this would have an uplift for the price of ether.”

Shapella will further “solidify confidence in the Ethereum network,” Arjoon concluded. 

Ethereum developers have successfully tested the Shapella upgrade on public test networks for many months. It is set to occur on mainnet epoch 620,9536, expected at 6:27  p.m. EST on April 12.

(with reporting assistance from Vishal Chawla)

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

If you can’t beat ’em, join ’em. 

That’s the underpinning philosophy of former PayPal President David Marcus’s approach to the cryptocurrency market, and his new startup Lightspark, after a tumultuous career in the space that included an attempt by Facebook to launch its own digital coin. 

“We’re very focused on rails and not assets,” Marcus, who most recently led Facebook’s payments division, Novi, said in an interview with The Block. “We learned this through all of our last adventures,” the Paris-born entrepreneur said with a mischievous grin, alluding to his much-publicized attempt to launch Meta’s Libra (later called Diem) before it was squashed by stateside regulators. 

His new startup — which revealed its product suite on Tuesday — is building on top of the Bitcoin network, specifically a Layer-2 protocol known as the Lightning Network. In Marcus’s view, building out the requisite tools to make the Lightning network easier to use is a better path than relying on alternative blockchains because of Bitcoin’s relative size and more secure regulatory footing. 

Lightspark raised about $173 million last year at a valuation of almost $1 billion at the time, according to a person familiar with the matter who declined to be named.

Lightspark’s platform overhauls the process by which market participants connect to Lightning, which requires users to establish peer-to-peer payment channels off-chain. The firm emerged from stealth in May when it announced a fundraise with backing from a16z Crypto, Paradigm, Coatue and Matrix Partners.

Lightning Woes

Despite being heralded by proponents as a way to scale Bitcoin and support cheaper and faster payments through the cryptocurrency network, Lightning has failed to gain much traction relative to the broader market.

The network’s capacity currently sits at $158 million, which – when compared to DeFi protocols — would rank 53rd in terms total value locked. Much of Lightning’s potential is being held back by the clunky and time-consuming process of node management and engaging with the Lightning Network, Marcus said.

“It was a lot like the early days of the internet,” said co-founder James Everingham, who most recently worked as vice president of engineering for Novi. “I wanted to run a web server I had to go find code, download it, build it, tweak it to get it to work with my specific server.” 

“This seemed to be very similar. I finally was able to download the code: it took me a week to tweak it to get it to work on my system.”

Lighspark’s products allow users to integrate their platform to support instant bitcoin transactions on the Lightning network. Specifically, it removes the need for Lightning node operators to manually find equilibrium, or balance, between inbound transactions and outbound transactions. 

“I have to do all this manual stuff which is pretty far beyond what a small business or someone that wants to connect to Lightning would do,” Everingham said. 

Lightspark leverages artificial intelligence to predict where liquidity is concentrated on Lightning to automated the channel balancing process. 

Muneeb Ali, CEO of Trust Machines, which enables Bitcoin applications, said this will help smaller companies who want to support Lightning payments do so without building out large technical teams.

“Effectively with a solution like this many independent players (imagine 100s of retail stores) can start giving more reliable payments to their end customers without hiring their own teams to manage ‘enterprise grade lightning’ like Strike or Cash App had to,” he said.

Capital Markets

While it might be some time before most people will be able to buy coffee from their local barista through the Lightning Network, Lightspark’s platform could provide a solution for crypto’s hobbled capital markets. In the wake of the blow-up of Signature Bank and Silvergate, high-speed traders lost a hub by which instant 24/7 transactions could be executed through a trusted party. Those players could theoretically move their activity to the Lightning, with the help of Lightspark. 

“This is real time net settlement, right, and it is definitely 24/7,” Marcus said. “Plus it is this thing that no one entity or person controls.”

“This is solving a lot of problems for a lot of players,” he said. “The current climate of crypto being very difficult right now makes us feel quite good that we built on bitcoin and not on anything else frankly.”

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Bitcoin on Monday evening pushed through $30,000 for the first time since June 2022.

Jeff Garzik says now that the crypto asset sector has weathered through the hype, higher quality projects are likely to continue developing.

Americans don’t much trust in crypto.

Price instability, a series of bankruptcies and regulatory uncertainty have left the majority of people in the U.S. with a lack of confidence in the reliability and safety of investing in and trading cryptocurrencies, according to a recent survey conducted by the Pew Research Center.

“Among the vast majority of Americans who say they have heard at least a little about cryptocurrency (88%), three-quarters say they are not confident,” in cryptocurrencies, said Pew, which estimates that equates to about two-thirds of all U.S. adults.

The cryptocurrency market has deteriorated significantly over roughly a year’s time after an extended bull run that lured many investors, big and small, into buying digital assets. In recent months, big banks and cryptocurrency exchanges have folded amid scandal and a lack of liquidity. U.S. regulators have stepped up scrutiny in the wake of the turmoil, casting the future of crypto into further uncertainty.  

Nearly 40% of Americans who “have heard about cryptocurrency” said they are “not at all confident” or “are not very confident” in the safety of trading digital currencies, and 18% said they are “somewhat confident,” according to the study.

Despite the poor standing, crypto still polled better than the U.S. government. But only slightly. In Pew’s most recent look at how Americans feel about their government, only two in ten respondents said they trust Washington to do what is right “just about always” (2%) or “most of the time” (19%).

Older skeptics

Americans over the age of 50 are more skeptical than their younger counterparts. Among people who have invested in crypto, 43% lack confidence in the digital currencies.

Roughly three-quarters of the people polled who have invested in crypto said they did so for the first time between one and five years ago. And 69% of those who have invested in crypto still own some, Pew said.

Bitcoin, the biggest of all cryptocurrencies, has recently rebounded, rising to its highest level in nearly two years.

The Pew results seem to be at odds with other recent surveys. A Paxos-backed poll from earlier this year of 5,000 U.S.-based working-age adults showed 75% remain “confident or somewhat confident in the future of crypto.” The survey occurred Jan. 5 and 6 and included adults earning over $50,000, who had a bank account and who purchased crypto in the past three years.

Another from Coinbase found that was released in February showed more than 50 million Americans own crypto and 67% of respondents generally found the overall global financial system to be unfair and in need of “major changes or a complete overhaul.”

© 2023 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The economy ministry is interested in the virtual worlds’ impact on privacy, health and the environment

Ethereum is expected to address the implementation of proto-danksharding in the months after Wednesday’s Shanghai upgrade (also referred to as “Shapella”), as well as other mechanisms that will make the blockchain more scalable. Last year saw the Merge. Now comes the Verge, Purge and Scourge.

Maple’s new pool will allow accredited investors, corporate treasuries based outside of the U.S. to invest in U.S. treasury bonds on-chain, CEO Sid Powell said in a community call.