Ethereum Staking Yields Set to Surpass Federal Funds Rate, Boosting Price Narrative

As the cryptocurrency market warms up, Ethereum (ETH/USD) staking yields are set to surpass the federal funds rate. This could create a strong narrative that drives the price of Ethereum, the world’s second-largest cryptocurrency.

Here’s what’s happening: The gap between Ethereum's Composite Staking Rate and the Effective Federal Funds Rate has been negative since June 2023. Recently, though, it hit its highest point since December 2023, according to research from FalconX.

Analysts believe this spread will decrease and may even turn positive soon. They point to two main reasons for this change.

First, the Federal Reserve might cut interest rates further. Just this month, they made a significant cut of 0.5%. According to the CME’s FedWatch Tool, there's an 85% chance the target federal funds rate will drop below 3.50-3.75% by March 2025. There’s even over a 90% chance it could fall below 3.25-3.50% by June 2025. Lower Fed rates typically mean lower returns on safe U.S. debt.

Second, Ethereum’s transaction fees have been rising. These fees are a key part of the composite staking rate. YCharts reports that average transaction fees recently reached their highest level since August 5.

Staking returns depend directly on how many transactions occur on the Ethereum network. As the market enters a bullish phase, analysts expect an increase in blockchain activity. More transactions mean higher returns. Right now, staking yields are at 3.19%, according to Staking Rewards.

It’s important to note that while rising staking yields might not be the main driver of ETH prices, they will definitely support the overall narrative.

Since the Shapella Upgrade allowed withdrawals last April, interest in Ether staking has surged. The amount staked as a percentage of the total supply has jumped from 15.8% before the upgrade to over 28% now, based on CryptoQuant data.

However, Ethereum exchange-traded funds (ETFs) currently don’t offer staking options. This means many traditional investors can’t access this potentially lucrative opportunity.

As of now, Ether is trading at $2,633.65, down 0.69% in the last 24 hours, according to Benzinga Pro.