FalconX: Ethereum staking yields could exceed US interest rates, pushing up ETH prices

The spread between Ethereum’s Composite Staking Rate and the Effective Federal Funds Rate (EFFR) has remained negative since mid-2023. However, according to crypto trading and institutional brokerage FalconX, two key factors could push the spread into positive territory by mid-2025, creating a “double-whammy effect” that would further boost ETH prices. In a recent investor note, FalconX noted that the Federal Reserve recently decided to cut interest rates and expects to continue cutting rates next year. According to CME FedWatch, futures markets indicate an 85% chance that the federal funds rate will fall below 3.75% by March 2025, and a 90% chance that it will fall further to 3.5% by June. Lower U.S. interest rates will reduce the yields of traditional assets such as U.S. Treasuries, narrowing the spread with Ethereum staking. Data shows that staking yields are currently hovering around 3.2%. David Lawant, head of research at FalconX, wrote in the report: "In the overall crypto bull run around Ethereum prices, we have not seen a large positive spread between Ethereum staking rates and risk-free rates. The only time ETH's staking rate was significantly higher than the risk-free rate for a relatively long period of time was in late 2022, when the industry was struggling with the FTX crash at the bottom of the last bear market." YCharts data shows that Ethereum's transaction fees, which play an important role in staking rewards, climbed to their highest level in nearly two months last week. FalconX said that while Ethereum transaction fees are still far below previous bull market peaks, the recent rise reflects increased activity on its blockchain. Higher transaction fees increase staking returns, providing Ethereum stakers with more attractive returns. FalconX believes that the combination of falling U.S. interest rates and rising Ethereum yields could turn the spread positive in the next two quarters, making Ethereum more competitive with traditional yield assets. However, Jamie Coutts, chief crypto analyst at Real Vision, believes that institutional investors will be more willing to obtain staking returns through regulated products such as ETFs. "Until the U.S. SEC approves such issuance, demand may be suppressed," he said. Coutts added that while more mature asset management companies and private wealth companies may begin to invest directly, the demand for direct investment by most traditional institutions may be "slow to develop." (Decrypt)