Ethereum upgrade to release $30bn of digital tokens for investors

The software that underpins the second-biggest crypto coin, ether, is due for a software upgrade that will give investors access to more than $30bn (EUR27.5bn) of the digital tokens.

Known as Shapella, the latest upgrade to the Ethereum blockchain will enable investors to redeem an offshoot of ether tokens that they have deposited in return for interest on the blockchain network over the past three years.

Such so-called “staked ether” tokens currently account for about 15pc of all ether tokens, according to data firm Dune Analytics, and are worth some $31bn.

The changes will likely lead to heightened volatility for ether, investors have predicted.

Some believe that widespread redemptions could lead to a wave of selling, in turn weighing on the price of ether, whose market value of about $230bn is topped only by bitcoin.

“The release of this previously unrealised investment may lead to significant downward price pressure if it is immediately liquidated,” Deutsche Bank analysts said in a note.

In its last significant upgrade, Ethereum in September drastically reduced its energy usage – a move proponents said would give Ethereum an advantage as it seeks to surpass bitcoin.

But ether has continued to lag its larger rival, gaining just under 60pc this year versus a more than 80pc jump for bitcoin.

After trillions of dollars were wiped from the crypto market in a bruising 2022, the sector has rallied in 2023 on expectations that central bank interest rate hikes are slowing.

Ethereum has grown popular in so-called decentralised finance applications, which offer financial services while avoiding traditional industry gatekeepers such as banks.

It remains, however, little used in mainstream commerce or finance.

Earlier this week, bitcoin breached the key $30,000 level for the first time in 10 months, adding to its steady gains as investors raised bets that the US Federal Reserve will soon end its aggressive monetary tightening campaign.

Bitcoin has gained nearly 6pc since the start of the month, after rising 23pc in March.

Crypto investment products attracted $57mn in inflows last week – albeit on low volume – with most of the money focused on bitcoin, digital asset manager CoinShares said on Monday. This brings digital asset flows back into positive territory for the year, the report showed.

“The market has done a great job at culling all leveraged participants in the past 18 months,” said Matthew Dibb, chief investment officer at Astronaut Capital, a Singapore-based crypto asset manager.

“If (bitcoin) can survive the week over $30,000, we are going higher.”