💰 Ethereum: time to buy or sell? 👀

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GM everyone. This is 2036, the crypto newsletter that pays you 💸

Six days from today - on April 12, one of the most anticipated crypto events of the year will take place.

Ethereum will undergo a major upgrade.

This upgrade will allow people to withdraw Ethereum that’s been locked up since 2020.

Will the price go up? Or will it tank?

Our thoughts and strategy, in 2 minutes.

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If you’re new to Ethereum, here’s the 18-second summary:

• Ethereum is an open-source software that anyone can use to build decentralized applications.
  

• When it first launched, it used a mechanism similar to bitcoin called proof-of-work with which the network was secured by thousands of supercomputers solving mathematical problems.
  

• But in December 2020, Ethereum launched a new blockchain powered by proof-of-stake. 
  
  This meant that instead of using supercomputers, the network would be secured by individuals locking up (i.e. staking) their Ethereum in exchange for an annual reward (4-5%).
  

• In September 2022, The Merge finalized the transition of Ethereum from proof-of-work to proof-of-stake. Prince Vitalik called it the equivalent of changing the engine of an airplane mid-flight.

Next week, Ethereum will enable people to withdraw their locked ETH for the first time since 2020.

And there’s a cool $35 billion locked up.

Now, there are a lot of theories about what will happen.

But the most important to keep in mind, we believe, is that:

1/ Only 15% of all ETH in circulation are locked up (including 1% which are staking rewards)

People may sell their staking rewards immediately when they can.

But that’s a relatively small amount of ETH - just 1% of all ETH.

However, we don’t think most people will sell the rest of their locked up ETH because:

• most people who locked up ETH bought it for a much higher price than it’s trading for today.

• to lock up your ETH for 2 years, you had to be a true Ethereum believer.

And we think a lot of these believers will keep believing.

The crypto market could 100x over the next decade. And a lot of true believers have 5 to 10-year horizons. They’re not likely to sell now.

2/ The ability to withdraw ETH makes it less risky for new entrants

A lot of people, including institutions, want to buy ETH and earn a 4% annual return on it.

But they want to be sure they can withdraw it at any moment.

After this upgrade, they will be.

Remember, only 15% of all ETH is currently staked. But compare this with the % of staking on other blockchains:

• Solana 71%

• Cosmos 62%

• Avalanche 54%

• Cardano 69%

Now that you’ll be able to easily stake and unstake, we think this upgrade could lead to MORE people staking, not fewer.

That means the price impact to the downside would be minimal - at least in the short term. In the long term, it’s a huge net positive for ETH.

Yes, there could be some selling of staking rewards immediately next week and in the weeks that follow.

But more likely, demand for ETH will increase in the medium to long term as it becomes a liquid yield-bearing asset in crypto i.e. a crypto bond.

We have high hopes for ETH and think this upgrade is good for the ecosystem.

But again, as always, we could be totally wrong.

What do you think will happen? Let us know by replying to this email.

And if you want to know how to earn a yield on your ETH, we’ll show you that next week.

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