In a context of warming of the cryptocurrency market, Ethereum ETH/USD stake returns are on track to surpass the federal funds rate, emerging as a “powerful supporting narrative” to drive up 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, is currently at its highest level since December 2023, according to a study by the crypto brokerage firm cash. FalconX showed.
The gap is likely to narrow and eventually become positive in the coming quarters, the study added, citing two factors.
First, researchers anticipated further interest rate cuts from the Fed, after the agency adopted an aggressive 0.5% cut earlier this month. According to CME’s FedWatch tool, the target federal funds rate showed an 85% chance of falling below 3.50 to 3.75% by March 2025 and more than a 90% chance of rates falling below from 3.25 to 3.50%. by June 2025.
As everyone knows, a Fed rate cut means lower yields on risk-free US debt instruments.
Second, Ethereum transaction fees, a major component of the composite staking rate, have increased recently. According to YCharts, average fees per transaction reached their highest level since August 5.
For those curious, staking returns are directly proportional to the number of transactions on the protocol. The report predicts an increase in blockchain activity as the market enters a bullish phase, leading to more transactions and, therefore, higher returns. Currently, the yields are 3.19%, according to Staking Rewards data.
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The report clarifies that an increase in staking yields will not be the primary catalyst for ETH price, although it would act as a “powerful supporting narrative.”
Why it matters: Users have shown increased interest in staking Ether since the Shappella upgrade, which allowed withdrawals, went live in April last year.
The amount staked as a proportion of the total supply has increased from 15.8% before the upgrade to over 28% as of this writing, according to data received from CryptoQuant.
That said, Ethereum exchange-traded funds currently do not offer staking features, keeping this potentially lucrative avenue out of reach for many traditional investors.
Price action: At the time of writing, Ether was trading at $2,633.65, down 0.69% over the past 24 hours, according to data from Benzinga Pro.
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