Amidst a warming cryptocurrency market, Ethereum (ETH) staking yields are poised to overtake the federal funds rate, emerging as a significant force in driving the price of the world’s second-largest cryptocurrency. Research from cryptocurrency brokerage firm FalconX reveals that the gap between Ethereum’s Composite Staking Rate and the Effective Federal Funds Rate, which has been negative since June 2023, is currently at its highest point since December 2023. This trend is projected to continue, with the spread likely to narrow and ultimately turn positive in the coming quarters.
Two key factors are driving this shift. Firstly, the Federal Reserve is expected to continue cutting interest rates, following their recent aggressive 0.5% reduction earlier this month. According to CME’s FedWatch Tool, there is an 85% probability that the target federal funds rate will fall below 3.50-3.75% by March 2025, and over 90% odds of rates dropping below 3.25-3.50% by June 2025. Lower Fed rates translate to decreased returns on risk-free U.S. debt instruments, making Ethereum staking a more attractive option.
Secondly, Ethereum’s transaction fees, a major component of the composite staking rate, have been steadily rising. Data from YCharts shows that the average fees per transaction have climbed to their highest level since August 5th. This surge in fees is directly linked to increased blockchain activity, a trend that is expected to continue as the market enters a bullish phase. The more transactions on the Ethereum network, the higher the staking returns. Currently, staking yields stand at 3.19%, according to Staking Rewards.
While the report emphasizes that increased staking yields won’t be the sole driver of ETH price appreciation, they are expected to act as a powerful supporting narrative. This notion is supported by the growing interest in Ether staking since the Shapella Upgrade, which enabled withdrawals, went live in April 2023. The amount of ETH staked as a proportion of the total supply has climbed from 15.8% before the upgrade to over 28% at the time of this writing, according to data from CryptoQuant.
However, the absence of staking features in current Ethereum exchange-traded funds (ETFs) presents a barrier for many traditional investors seeking access to this potentially lucrative avenue. At the time of writing, Ether was trading at $2,633.65, down 0.69% in the past 24 hours, according to data from Benzinga Pro.
