Ethereum stock gains are expected to outpace US interest rates in the coming year, a move that could bolster Ethereum's price as investors seek higher yields.
With falling rates and rising transaction fees on the Ethereum network, market volatility is expected to narrow the gap between Ethereum staking returns and traditional risk-free rates in the coming quarters.
The spread between the Ethereum Composite Staking Rate and the effective federal funds rate has remained negative since mid-2023.
However, two key factors could push the spread into positive territory by mid-2025, creating a “double-whammy effect.”
In the investor Note On Friday, FalconX pointed to the recent decision of the Federal Reserve to reduce interest rates in a regime that is expected to continue next year.
According to futures markets, there is an 85% chance the federal funds rate will fall below 3.75% in March 2025 and a 90% chance it will fall to 3.5% in June, according to CME FedWatch. Data It shows.
Low US rates reduce yields on traditional assets like Treasury bonds, narrowing or widening the yield gap, per Ethereum's share. The stock's yield is currently hovering around 3.2%. Data It shows.
“We have yet to see what kind of juicy stock prices have spread at risk-free rates in the entire crypto bull market in Ethereum prices,” David Launt, head of research at Falconx, said in a note.
“The only time in a relatively long period of time that ETH's share price was significantly above risk-free rates was in late 2022 when the industry was struggling with the collapse of FTX at the bottom of a previous bear market.”
Last week, transaction fees for Ethereum, which plays a role in collecting rewards, rose to their highest level in nearly two months, according to YCharts. Data It shows. That has fallen to an average of $0.80 per transaction since Sunday.
While fees remain below previous bull market highs, Falcon X said the higher increase reflects blockchain activity. Higher transaction fees increase stock yields, providing more attractive returns for Ethereum shareholders.
FalconX believes that this combination of lower US prices and increased Ethereum production will make the spread positive over the next two quarters, making Ethereum competitive with traditional yield assets.
Positive spreads can increase a carry's appeal, yielding higher returns than risk-free options.
However, industry-savvy institutional investors prefer to get equity yield through regulated products, including exchange-traded funds, said Jamie Coates, chief crypto analyst at RealVision. Decrypt.
In May Securities and Exchange Commission It has approved eight applications for spot Ethereum ETFs. In order to clear regulatory hurdles, many issuers have removed references to equipping clients with Ethereum from their applications.
After Ethereum switched to a proof-of-stake system in September 2022, Ethereum owners had the ability to deposit funds through the network to earn rewards. But stocking up on US ETF products is still not easy.
“Until the SEC approves such offerings, interest may decline,” Coates said.
While more sophisticated asset managers and private wealth firms may begin investing directly, demand for direct exposure among more traditional institutions “may develop slowly,” Coates added.
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