Experts say that Ethereum staking yields are expected to exceed U.S. interest rates in the coming year, a shift that could prompt investors to seek higher returns, thereby driving up the price of Ethereum. Due to declining interest rates and increasing transaction fees on the Ethereum network, market dynamics are expected to narrow the gap between Ethereum staking yields and traditional risk-free rates in the coming quarters.
Since mid-2023, the spread between Ethereum's overall staking rate and the effective federal funds rate in the U.S. has remained negative. However, according to a report from cryptocurrency trading and institutional brokerage firm FalconX, two key factors could push the spread into positive territory before mid-2025, creating a "dual bullish effect."
FalconX noted in an investor memo last Friday that the Federal Reserve's recent decision to lower interest rates is expected to continue into next year.
According to FedWatch data, there is an 85% probability that the federal funds rate will fall below 3.75% before March 2025, and a 90% probability that it will drop below 3.5% by June.
The decline in U.S. interest rates will reduce the yields on traditional assets such as government bonds, thereby narrowing the yield gap with Ethereum staking. Currently, the Ethereum staking yield is about 3.2%.
However, David Lawant, head of research at FalconX, stated that it remains to be seen how much the gap between staking yields and risk-free rates will be during a full cryptocurrency bull market.
"The only time Ethereum staking yields were significantly higher than risk-free rates for a relatively long period was at the end of 2022, when the industry was at the bottom of the bear market following the FTX collapse."
According to YCharts data, Ethereum's transaction fees reached their highest level in nearly two months last week. Subsequently, the fees dropped to an average of $0.80 per transaction on Sunday.
Although current fees are far below the peaks of the previous bull market, this upward trend reflects increased blockchain activity, FalconX stated. Higher transaction fees have boosted staking yields, making returns for Ethereum stakers more attractive.
FalconX believes that the combination of declining U.S. interest rates and rising Ethereum yields could push the spread into positive territory within the next two quarters, giving Ethereum staking a competitive edge against traditional yield assets.