A recent report from Bernstein Research has raised the possibility of Ethereum ($ETH) exchange-traded funds (ETFs) in the United States including staking rewards in the near future.
If approved, this could make Ethereum ETFs more appealing to investors, combining price exposure with regular yields.
Ethereum staking involves locking up $ETH as collateral with a network validator on the Ethereum blockchain.
Validators are responsible for processing transactions and keeping the network secure. In return for their role, stakers receive rewards from network fees and other incentives.
Currently, staking Ethereum offers an annual return of about 3.1%, according to StakingRewards.com.
Bernstein’s report suggested that this rate could rise to between 4% and 5% as activity on the Ethereum network increases.
While staking can be rewarding, it comes with risks. If a validator misbehaves or fails to follow the rules, stakers could lose some or all of their locked $ETH.
This process, known as “slashing,” makes staking a commitment that requires trust in the validator’s reliability.
Policy shift could bring staking to ETFs
In July, the US Securities and Exchange Commission (SEC) allowed spot Ethereum ETFs to trade but restricted these funds from using staked $ETH to generate additional rewards.
Companies like Fidelity, 21Shares, and Franklin Templeton have pushed for permission to incorporate staking, but the SEC has so far rejected these requests.
The situation could change under the upcoming Trump administration. President-elect Donald Trump has expressed a strong interest in supporting the crypto industry, aiming to turn the United States into the “world’s crypto capital”.
Analysts at Bernstein are of the opinion that this could lead to significant policy changes. “We believe, under a new Trump 2.0 crypto-friendly [Securities and Exchange Commission], ETH staking yield will likely be approved”, Bernstein stated.
Approval could allow Ethereum ETFs to offer both exposure to $ETH price changes and staking rewards, making them more attractive to a broader range of investors.
Rising investor interest in Ethereum
Ethereum, the second-largest cryptocurrency after Bitcoin, has seen fluctuating performance in recent years.
However, 2024 has been a breakthrough year for $ETH-focused investment funds, which recorded net inflows of $2.2 billion, according to CoinShares. This is a new record, surpassing the $2 billion inflows seen in 2021.
The surge in investor interest reflects growing confidence in Ethereum’s future. The head of digital asset research at VanEck, Matthew Sigel, has made bold predictions about the cryptocurrency’s potential.
Sigel expects the Ethereum network to generate $66 billion in annual free cash flow by 2030, which could push the price of $ETH to as much as $22,000 per token.
Bernstein’s report echoes this optimism, noting that Ethereum’s fundamentals remain strong. “The recent inflection in ETF inflows indicates a solid revival of interest”, the analysts said.
They view Ethereum as an increasingly attractive investment, especially as it has been gaining attention after lagging behind Bitcoin in recent years.
What this could mean for investors?
If staking rewards are approved for Ethereum ETFs, it could mark a significant milestone for both the crypto and traditional finance sectors. Currently, Ethereum ETFs only provide exposure to $ETH’s price changes.
Adding staking would bring an additional layer of benefits, offering investors regular returns alongside the potential for long-term price appreciation.
This move could also bring decentralised finance (DeFi) concepts closer to mainstream financial markets.
With staking rewards, ETFs would combine elements of traditional investments, like regular yields, with the innovative potential of blockchain technology.
For now, the industry is watching closely to see how the regulatory environment evolves. While changes won’t happen overnight, the possibility of a crypto-friendly SEC under the Trump administration has created a wave of anticipation in the crypto community.
As Bernstein notes, “Ethereum fundamentals look strong, and the recent inflection in ETF inflows indicates a solid revival of interest”.
With strong investor momentum and potential policy shifts on the horizon, the next few years could be transformative for Ethereum and its role in the investment landscape.
