Ethereum Staking Yield to Drive ETH Price Recovery: FalconX

• Institutional crypto broker FalconX has tipped staking yield as a “powerful” driver for Ethereum price recovery.
• The broker contended that this could happen due to the Fed’s recent pivot and network activity.
• Ethereum is already showing tentative signs of a recovery.

Over the past few months, some have argued that Ethereum (ETH) is facing an existential crisis. In a largely unanticipated fallout of the Dencun upgrade , ETH has lost its deflationary status , leading many to question the thesis for holding the asset. These concerns have been compounded by the asset’s underperformance of fellow market leaders like Bitcoin (BTC) and Solana (SOL) .

Experts have, however, downplayed concerns as overblown, pointing to things like Ethereum’s DeFi dominance and expected application utility growth as vectors to drive demand. Institutional crypto broker FalconX is the latest to add to the list of supporting ETH narratives.

“A Double-Whammy Effect”

Institutional crypto broker FalconX has tipped staking yield as a key driver of Ethereum price recovery. FalconX’s Head of Research David Lawant made this argument in a note on Friday, September 28, suggesting that ETH staking yield was likely to surpass yield from traditional risk-free investments, like treasury bonds, which could lure investors seeking higher yield.

Lawant contended that this would happen “due to a double-whammy effect,” the first being the Federal Reserve’s recent dovish pivot , which would lower yield on traditional risk-free investments. 

On September 18, the Fed cut interest rates by a massive 50 basis points for the first time in four years while hinting at a chance of at least one more rate cut within the year. The CME FedWatch Tool suggests an over 80% chance of interest rates dropping from the current 4.75%-5% range to below the 3.75% range by March 2025 and a 90% chance it will fall further to 3.5% by June 2025.

FalconX’s second anticipated catalyst is a rise in transaction fees, which is expected to boost staking yields. This rise in transaction fees is expected to come from increased network activity during a bull market.

"All in, a potential bull crypto market fueled by a more abundant liquidity environment and a perceived positive outcome for the industry in the 2024 elections would likely lead to ETH staking yields playing a more prominent role over the next few quarters," the market researcher wrote. 

While FalconX’s Lawant conceded that staking yields were unlikely to be the primary driver for ETH price recovery, he maintained that it would be “a powerful supporting narrative.”

"This is not a short-term trend, but one that could potentially develop over the next few quarters," he added.

At the time of writing, U.S. treasury yields range from 3.5% to 4.8% . ETH staking yield, however, sits at 3.2% per Staking Rewards data .

The recent FalconX report comes as ETH already appears to be showing tentative signs of a recovery.

Ethereum (ETH) Recovery Already Underway?

Last week, Ethereum showed signs of strength, climbing above the $2,700 price point while outperforming market leader Bitcoin (BTC) by about 5% as the broader market rallied, buoyed by macroeconomic tailwinds from the U.S., Japan, and China. The price surge was accompanied by increased speculative on-chain activities that saw fees jump to over two-month highs at around $7 per transaction, excluding a spike on August 5, per Etherscan data .

Average Ethereum transaction fee chart. Source: Etherscan

At the time of writing, however, ETH has shed some of its gains to trade just above the $2,600 price point. The dip comes amid a broader market correction as traders err on the side of caution ahead of a week packed with economic data, including the U.S. non-farm payroll and unemployment rate for September 2024.

On the Flipside

• U.S. institutions interested in benefiting from high Ethereum staking yield may be hamstrung by limitations on spot ETH ETFs .
• The recent prediction is highly dependent on continued macroeconomic tailwinds.

Why This Matters 

In recent months, many have questioned Ethereum’s value proposition from an investment standpoint. FalconX’s report offers yet another vector that could drive demand for the asset.

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