Ethereum Set for Recovery After Fed Cuts Interest Rates: Steno

This article is also available in Spanish.

As highlighted by Steno Research, Ethereum’s (ETH) period of lagging performance relative to the broader cryptocurrency market might be coming to an end following the US Federal Reserve’s (Fed) recent interest rate cuts.

Ethereum’s Moment to Shine is Approaching

In terms of price growth, 2024 has not been particularly favorable for ETH. While Bitcoin (BTC) and other altcoins like Solana (SOL) and Tron (TRX) have experienced significant price increases, ETH continues to trade near its January 2024 levels.

Importantly, the second-largest cryptocurrency by market capitalization has seen a 48% decline against Bitcoin since the Ethereum merge on September 15, 2022.

For those unfamiliar, the Ethereum merge marked a crucial development for this leading smart contract platform; it transformed its consensus mechanism from Proof-of-Work (PoW) to Proof-of-Stake (PoS) and reduced the new ETH issuance from 4% to 1% annually.

Consequently, the net growth of ETH supply has been negative, as more ETH has been burned through transaction fees than what has been issued to stakers.

The disappointing performance of Ethereum in comparison to Bitcoin is illustrated in the subsequent chart, indicating that the ETH/BTC trading pair has dropped to 0.04, causing it to lose all the gains it had accrued against the leading cryptocurrency since April 2021. Nonetheless, a recent report from Steno Research suggests that Ethereum may be poised for a resurgence.

The report suggests that the Federal Reserve’s decision to lower interest rates could be the catalyst for a significant price increase in ETH over the next few months. It draws parallels to ETH’s performance during the previous altcoin season, when it more than doubled in value relative to BTC in less than two months.

This rapid growth was attributed to a marked increase in on-chain activity driven by growing interest in blockchain ecosystems, including decentralized finance (DeFi), non-fungible tokens (NFTs), and an uptick in stablecoin issuance. In a post on X, Mads Eberhardt, Senior Cryptocurrency Analyst at Steno Research, remarked:

Lower interest rates -> Increased on-chain activity -> Enhanced Ethereum transactional revenue -> Reduced ETH supply growth -> Ascending ETH price. Let’s do this.

Key Factors Behind Ethereum’s Lackluster Performance

Further, the report indicates that Ethereum exchange-traded funds (ETFs) are likely to outperform Bitcoin ETFs. While discussing why BTC has overshadowed ETH recently, Eberhardt points out:

The influence of U.S. spot ETFs on both Bitcoin and Ethereum, the ongoing purchasing pressure from MicroStrategy (MSTR), and a significant drop in Ethereum’s transactional revenue over the past months.

In spite of the challenges it faces, confidence among investors in Ethereum remains robust. Recently, the Chief Investment Officer of Bitwise crypto exchange referred to Ethereum as the ‘Microsoft of blockchains,’ suggesting that it may see a rebound by the end of the year following the November U.S. presidential elections. Currently, ETH is trading at $2,543, reflecting a 4.3% increase in the last 24 hours.