Ethereum 2.0 staking skyrocketed after the successful Shanghai upgrade, sending ETH price to a 2023 peak of $2,120 on April 17. On-chain data examines the negative correlation emerging between smart contract deposits and the ETH price.
The much-anticipated Shanghai upgrade went live on April 12, marking Ethereum’s full transition to the Proof of Stake (PoS) consensus mechanism. As the crypto market momentum cooled in Q2, ETH holders began to stake their coins for passive income rather than perform productive DeFi transactional activity.
Now, 4 months later, it appears that the ongoing, unprecedented rise in ETH 2.0 staking has started negatively impacting the Ethereum price.
ETH 2.0 Staking Has Risen to an Unprecedented Level
Ethereum’s transition to the PoS consensus has triggered an astronomic rise in the ETH staking. According to data from Glassnode, about 37.8 million ETH (31.4% of the total circulating supply) is now locked up in DeFi smart contracts.
Typically, increased staking is often bullish for price. But worryingly, with more than 30% of the ETH supply now locked up, the chart below illustrates an emerging adverse effect.
Between July 25 and August 10, Ethereum Supply in Smart Contracts nominally increased from 31.08% to 31.4%. This saw another 432,547 ETH worth approximately $800 million temporarily removed from the global market supply.
In reaction, Ethereum price has remained relatively stagnant, hovering between the 2% price boundary, around $1,850 and $1,890, during that period.
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Author: Ibrahim Ajibade
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