Ethereum staking productivity is expected to exceed US rates by 2025
TLDR
Ethereum interest rates are expected to exceed US interest rates by mid-2025. Falling US rates and rising Ethereum transaction fees contribute to this trend.A positive yield spread makes Ethereum more attractive to investors.27 percent of Ethereum supply is now held on the network by institutional investors. There is an opportunity to choose products that are adjusted for exposure
Ethereum, the second largest by market capitalization, is attracting the attention of investors and analysts as its stock yield is expected to outpace US interest rates in the coming year.
This change could boost the price of Ethereum as investors seek to capitalize on the changing economic landscape.
According to a recent analysis by crypto trading company FalconX, two key factors are expected to drive Ethereum stock returns above traditional risk-free rates by mid-2025.
First, the Federal Reserve's recent decision to cut interest rates is likely to continue next year. Futures markets indicate an 85% chance of the federal funds rate falling below 3.75% in March 2025, with a 90% chance of a cut to 3.5% in June.
As US rates continue to decline, yields on traditional assets such as Treasury bonds are expected to follow suit.
This narrowing of the yield gap between traditional investments and Ethereum stocks makes the latter more attractive to investors. Currently, Ethereum's stock is hovering around 3.2%.
A second factor contributing to this trend is the recent increase in Ethereum transaction fees. Last week, these fees hit a two-month high, though they've averaged $0.80 per transaction since then.
While still below previous bull market highs, this increase reflects growing blockchain activity and contributes to higher yields.
David Launt, head of research at FalconX, said in an investor report that the crypto market has yet to experience the full potential of attractive staking rates compared to risk-free rates during a strong bull market for the price of Ethereum.
A combination of lower US rates and rising Ethereum yields could turn the spread positive over the next two quarters. This change could increase demand for Ethereum stock, as it offers higher returns than risk-free alternatives.
However, institutional investors may prefer to gain access to equity products through regulated products, such as exchange-traded funds (ETFs).
Jamie Coates, chief crypto analyst at RealVision, told Decrypt that demand for direct exposure among most traditional institutions will likely develop slowly until the SEC approves these offerings.
In May, the Securities and Exchange Commission approved eight applications for spot Ethereum ETFs. In order to meet regulatory requirements, many issuers have removed references to equipping a client with Ethereum from their applications. This development highlights the ongoing challenges in bridging traditional finance with the crypto ecosystem.
Since Ethereum transitioned to a proof-of-stake system in September 2022, Ethereum owners have been able to deposit funds through the network to claim rewards.
Coinbase's latest data shows that 32.6 million ETH, which represents more than 27% of the total supply, is now used to secure Ethereum's proof-of-stake network.
Although the ecosystem anticipates the launch of spot Ethereum ETFs in the US, this milestone underscores the growing enthusiasm for Ethereum stock.
However, with regulatory hurdles shaping the landscape of crypto investment products, stocking US ETF products is not easy.
