Staking outperforms risk-free rates, FalconX: ETH staking rewards to become a new investment highlight

A recent article by the cryptocurrency trading institution FalconX suggests that ETH staking yields may play a crucial role in the coming quarters, especially with the Federal Reserve's continued interest rate cuts, along with the 2024 election and increasing global liquidity, all of which are expected to benefit the price of ETH.

Recent Market Trends

Recently, BTC broke through $65,000 for the first time, reaching its highest point since the end of July. This was mainly attributed to the Federal Reserve starting a rate-cutting cycle and China implementing economic stimulus policies to boost the market. Despite Bitcoin's rise, within the category of cryptocurrencies with a market value exceeding $10 billion, BTC's increase ranks third, while the ETH/BTC exchange rate has also surpassed 0.04 for the first time in three years.

However, the market later experienced a decline due to the impact of the Middle East conflict, causing both the U.S. stock market and cryptocurrencies to fall.

Is Iran preparing to launch missiles? U.S. stocks fell as tensions escalated in the Middle East and oil prices surged, causing BTC to drop to 62K

Comparison of Risk-Free Rates and Ethereum Staking Returns

FalconX's main focus is on the potential for ETH staking returns to outperform risk-free rates, attracting more attention.

FalconX's Head of Research, David Lawant, pointed out that since Ethereum transitioned to Proof of Stake (PoS), the market has been paying attention to the relationship between Ethereum staking returns and risk-free rates such as the Federal Reserve's fund rate. Data shows that since June of last year, the interest rate difference between the two has been negative, but the gap is currently narrowing and is likely to turn positive in the coming quarters.

The Federal Fund Rate may continue to decline. According to the latest economic forecast from the Federal Reserve, long-term rates are expected to range from 2.4% to 3.8%, significantly lower than the current 4.75% to 5%.

Market predictions indicate that by June 2025, the Federal Reserve rate is expected to drop to between 3.25% and 3.5%, gradually narrowing the gap between Ethereum staking returns and risk-free rates, potentially turning positive in the second quarter of 2025.

Continued Rise in Ethereum Transaction Fees

Due to the adoption of Layer 2 solutions, Ethereum transaction fees have been decreasing over the past three years. Although fees have recently risen to their highest levels in over three months, they still only account for 10-20% of historical highs.

David Lawant optimistically believes that active on-chain activities can still drive fee increases, especially as crypto bull markets are often associated with more intense on-chain activities. The rise in transaction fees will directly benefit Ethereum staking returns and the price itself.

David Lawant concluded that as the 2024 election approaches and the Federal Reserve gradually lowers rates, Ethereum staking returns are expected to play a key role in the coming quarters. While the rise in staking returns is unlikely to be the main driver of ETH price, it will help attract more investors to Ethereum and further promote the development of the DeFi market.

He stated:

This won't be a short-term trend, but I am interested to see if such a potential trend will occur by 2025.