Ethereum staking yields could exceed US interest rates, leading to price rise, experts say

Ethereum staking revenues are expected to exceed U.S. interest rates next year, a change that could push Ethereum's price higher as investors seek higher yields.

Due to lower rates and higher transaction fees on the Ethereum network, changing market dynamics are expected to narrow the gap between Ethereum staking returns and traditional risk-free rates in the coming quarters.

The spread between Ethereum’s overall staking rate and the effective federal funds rate has remained negative since mid-2023.

However, two key factors could push spreads into positive territory by mid-2025, creating a “double whammy,” according to crypto trading and institutional brokerage firm FalconX. .

among investors Note On Friday, FalconX pointed to the Fed's recent decision to cut interest rates, a policy that is expected to continue into next year.

According to futures markets, there is an 85% chance that the federal funds rate will fall below 3.75% by March 2025, and a 90% chance that it will fall further to 3.5% by June, CME FedWatch said. data is shown.

Lowering U.S. interest rates would reduce yields on traditional assets such as government bonds, narrowing the yield gap or spread with the Ethereum stake. Staking yields are currently hovering around 3.2%. data is shown.

“With the cryptocurrency bull market in Ethereum prices in full swing, it remains to be seen what kind of attractive staking rate spread will be compared to the risk-free rate,” said David Rowant, head of research at FalconX. is written in the memo.

“The only time ETH staking rates were significantly above risk-free rates for a relatively long period of time was late 2022, when the industry was grappling with the FTX debacle at the bottom of the last bear market.”

Ethereum transaction fees, which affect staking rewards, rose to their highest level in nearly two months last week, according to YCharts. data is shown. It has since fallen to an average of $0.80 per trade as of Sunday.

Although fees are still well below historical bull market peaks, FalconX said the increase reflects increased blockchain activity. Higher transaction fees increase staking yields, resulting in more attractive returns for Ethereum stakers.

FalconX believes that lower U.S. interest rates and higher Ethereum yields could turn spreads positive over the next two quarters, making Ethereum staking more competitive compared to traditional yielding assets. are.

Positive spreads make staking more attractive and may offer higher returns than risk-free options.

But the industry's coveted institutional investors will prefer accessing staking yield through regulated products, including exchange-traded funds, said Jamie Coutts, principal crypto analyst at RealVision. decryption.

In May, securities and exchange commission We have approved 8 applications for Spot Ethereum ETF. To clear regulatory hurdles, several issuers have removed references to staking customers Ethereum from their applications.

Since Ethereum transitioned to a proof-of-stake system in September 2022, Ethereum holders have been able to earn rewards by depositing funds into the network. However, investing in US ETF products remains difficult.

“Until the SEC approves such a proposal, demand may be constrained,” Coutts said.

While more sophisticated asset managers and private wealth firms may start investing directly, demand for direct exposure at most traditional financial institutions is “likely to develop slowly”. Coutts added.