Amid a warming cryptocurrency market, Ethereum ETH/USD staking yields are on track to surpass the federal funds rate, emerging as a “powerful supporting narrative” to drive the price of the world’s second-largest cryptocurrency.
What Happened: The gap between Ethereum's Composite Staking Rate and the Effective Federal Funds Rate, which has been negative since June 2023, was currently at its highest since December 2023, research by cryptocurrency brokerage firm FalconX showed.
The spread was likely to decrease and eventually turn positive in the upcoming quarters, the research added, citing two factors.
Firstly, the researchers anticipated further cuts in interest rates by the Fed, after the agency enacted an aggressive 0.5% slash earlier this month. According to CME’s FedWatch Tool, the target federal funds rate showed 85% odds of going below 3.50-3.75% by March 2025 and more than 90% odds of rates falling below 3.25-3.50%. by June 2025.
As is well known, a Fed rate cut means lower returns on risk-free U.S. debt instruments.
Secondly, Ethereum’s transaction fees, a major component of the composite staking rate, has been on the rise recently. According to YCharts, the average fees per transaction jumped to its highest level since Aug. 5.
For the curious, staking returns are directly proportional to the number of transactions on the protocol. The report anticipated a boost to blockchain activity as the market entered a bullish phase, leading to more transactions, and in turn, higher returns. Currently, yields are 3.19%, according to data from Staking Rewards.
The report clarified that an increase in staking yields won’t be the primary catalyst driving the price of ETH, though they would act as a “powerful supporting narrative.”
Why It Matters: Users have shown heightened interest in Ether staking since the Shapella Upgrade, which enabled withdrawals, went live last year in April.
The amount staked as a proportion of the total supply has risen from 15.8% before the upgrade, to over 28% as of this writing, data from CryptoQuant received.
That said, Ethereum exchange-traded funds don’t offer staking features currently, keeping the potentially lucrative avenue out of reach for many traditional investors.
Price Action: At the time of writing, Ether was exchanging hands at $2,633.65, down 0.69% in the last 24 hours, according to data from Benzinga Pro.
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