From theblock by James Hunt

Quick Take

Analysts at research and brokerage firm Bernstein said staking yields would likely be approved for spot Ethereum  ETH -3.03%

exchange-traded funds in the United States under the incoming Trump administration — one of four factors driving a revival of interest in the second-largest cryptocurrency.

The total crypto market cap recently exceeded $3.5 trillion — up around 45% since Donald Trump’s U.S. presidential election victory. Among the majors, ether has outperformed during that time, up 46% compared to 41% and 36% for bitcoin and Solana, respectively. XRP’s recent surge should also be noted, gaining 358% over the same period to surpass Solana’s market cap.

However, ether has still lagged behind year-to-date — up around 57% compared to bitcoin’s 125% and Solana’s 122%. Putting forward the bear case argument, Bernstein analysts led by Gautam Chhugani said in a Monday note to clients that ether struggles as a store of value compared to bitcoin and faces competition from faster Layer 1 blockchains, like Solana, Sui and Aptos. Additionally, Ethereum's reliance on Layer 2 solutions for scaling fragments the user experience, driving retail users to faster blockchains or one particular Layer 2, like Base, potentially limiting Ethereum's fee growth and user retention, they said.

‘The risk-reward here looks attractive’

Despite that underperformance, ether's risk-reward now looks attractive, Chhugani said — outlining four catalysts for growth over the remainder of the cycle.

The potential for staking yield, originally excluded from the U.S. spot Ethereum ETF approvals, to soon be included is one such factor. “We believe, under a new Trump 2.0 crypto-friendly SEC, ETH staking yield will likely be approved,” the analysts wrote. In a declining rate environment, ether's current 3% yield, which could rise to 4-5% with a boost in blockchain activity, is increasingly attractive, offering compelling returns for investors while benefiting asset managers through improved ETF economics, they added.

The recent inflection in Ethereum ETF inflows is another catalyst, the analysts argued. Despite a tepid launch, the funds have attracted more than $1.1 billion in net inflows since the U.S. election, overcoming substantial initial outflows from Grayscale’s converted and higher-fee fund, ETHE, to reach $583.8 million total net inflows since launching in July, with $11 billion in assets under management. On Friday, the spot Ethereum ETFs registered $332.9 million compared to $320 million for their bitcoin counterparts, and continued strong inflows would further strengthen positive demand-supply dynamics, the analysts said.

Ethereum’s transition to proof-of-stake and its burn mechanism have stabilized supply at around 120 million ETH, with 28% of ether locked in staking contracts and another 10% in lending or Layer 2 bridges. With 60% of ether unmoved in the past year, these factors indicate a resilient investor base and favorable demand-supply dynamics, they noted.

Finally, Ethereum’s blockchain activity is beginning to surge again, with 63% of total value locked in all blockchains, indicating a high level of trust for whales and institutions, the analysts said. “While Solana has definitely taken the lead on retail users, Ethereum remains a platform of choice for institutional use-cases such as asset tokenization and stablecoins,” they argued. Meanwhile, Ethereum’s Layer 2 scaling model is continuing to grow, with daily Layer 2 transactions exceeding 15 million compared to around 1 million on the base layer, supported by Ethereum's security layer and ether as the primary currency for fees, they said.