Ethereum, the second-largest digital currency behind only bitcoin, might not be the first asset investors think of when it comes to beneficiaries of lower interest rates. But there’s a compelling case to be on that front.
That could be to the benefit of the recently launched spot ethereum exchange traded funds, including the VanEck Ethereum ETF (ETHV ). The fund debuted in June and has nearly $64.3 million in assets under management, confirming there is robust appetite for ether in the ETF wrapper. The fund’s solid start could be an interesting scenario created by monetary easing courtesy of the Federal Reserve.
Put simply, as interest rates declines, the staking yields offered by ethereum become more attractive. By some estimates, the current average staking yield on ethereum is close to 4%. And some platforms go even higher than that. But the point is the staking yield could become increasingly appealing as interest rates decline.
Why Lower Rates Could Help ETHV
ETHV’s leverage to lower interest rates is easily explained. For an investor to benefit from ethereum staking yields, they must own the cryptocurrency. Thus, if market participants view those staking yields as compelling relative to cash or Treasurys, they could enter the ether market via ETFs such as ETHV.
“However, industry-coveted institutional investors will prefer to access staking yields through regulated products, including exchange-traded funds," Real Vision Chief Crypto Analyst Jamie Coutts told Sebastian Sinclair of Decrypt.
The rub is that, for now, the SEC does not permit ethereum staking via ETFs. But funds such as ETHV would nonetheless benefit from yield-driven buying of the underlying cryptocurrency. It’s been two years since ether transitioned to the proof-of-stake system.
As for the interest rate outlook, the Fed cut interest rates by 50 basis points last month. And market observers expect another 100 basis points worth of reductions by the start of the second quarter of 2025. The Fed funds rate could be as low as 3.5% by the end of that quarter, potentially making ether staking yields all the more attractive.
“We still have yet to see what juicy staking rates spread versus the risk-free rate amid a full-fledged crypto bull market for the price of Ethereum," David Lawant, FalconX’s head of research, wrote in a recent report.
He added that the last time ether staking yields exceeded those of risk-free assets by wide margins was during the collapse of FTX in 2022.
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