Ethereum staking returns may exceed US Treasury rates! Analyst: 'Double positive' will drive ETH up

Experts say that Ethereum staking returns are expected to exceed US interest rates in the coming year, and this shift may prompt investors to pursue higher returns, thereby driving up Ethereum prices. Due to the decrease in interest rates and the increase in transaction fees on the Ethereum network, market dynamics are expected to narrow the gap between Ethereum staking returns and traditional risk-free returns in the coming quarters.

Since mid-2023, the spread between Ethereum's composite staking rate and the effective federal funds rate in the United States has remained negative. However, according to a report by cryptocurrency trading and institutional brokerage firm FalconX, two key factors may push the interest rate spread to positive values before mid-2025, resulting in a 'double positive effect'.

FalconX stated in an investor memo last Friday that the Federal Reserve has recently decided to lower interest rates and expects this policy to continue until next year.

According to FedWatch data, the probability of the federal funds rate falling below 3.75% before March 2025 is 85%, while the probability of falling below 3.5% in June is as high as 90%.

The decline of US interest rate will reduce the yield of traditional assets such as treasury bond, thus narrowing the yield gap with Ethereum pledge. At present, the yield of Ethereum staking is about 3.2%.

However, David Lawant, head of research at FalconX, stated that the extent of the gap between staking returns and risk-free returns in a complete cryptocurrency bull market remains to be seen.

The only time the Ethereum staking yield significantly exceeded the risk-free yield for a relatively long period of time was at the end of 2022, when the industry was in a bear market trough following the collapse of the FTX

According to YCharts data, transaction fees for Ethereum reached their highest level in nearly two months last week. Subsequently, the fee was reduced to an average of $0.80 per transaction on Sunday.

Although the current costs are much lower than the peak of the previous bull market, this upward trend reflects an increase in memory blockchain activity, "FalconX said. The higher transaction costs have driven the staking profits, making the returns of Ethereum stakers more attractive.

FalconX believes that the combination of declining US interest rates and rising Ethereum yields may push the spread to a positive value in the next two quarters, giving Ethereum staking an advantage in competition with traditional yield assets.