JPMorgan Is Bullish on Eth 2.0, says Yields via Staking is ‘An Incentive to Invest’ in Crypto
According to the report, the yield earned would not only drive crypto to become “more mainstream” but also “mitigate the opportunity cost” of owning crypto versus USD & US Treasuries. Interestingly, a mere 0.05% increase in rates by the Fed drew $756 billion in funds within a day.
JPMorgan Chase analysts say major upgrades to the Ethereum network could help crypto staking turn into a $40 billion business by 2025, providing crypto holders an opportunity to earn a reliable yield. The report reads,
“Not only does staking lower the opportunity cost of holding cryptocurrencies versus other asset classes, but in many cases, cryptocurrencies pay a significant nominal and real yield.”
The crypto staking industry is currently worth around $9 billion, wrote JPMorgan analysts, led by Kenneth Worthington in a note this week.
From the current $9 bln, the industry could grow to $20 billion likely within the next year after the second-largest network completes its shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS) network it said.
More than 6 million ETH, worth about $12.4 billion, are already staked in Eth 2.0 as of writing.
According to the analysts, the biggest crypto exchange in the US, Coinbase, can potentially earn around $500 million a year in revenues from staking by the end of 2025.
“We see staking as a growing revenue stream for cryptocurrency intermediaries such as Coinbase and a source of income for retail and commercial owners of cryptocurrencies utilizing the proof-of-stake protocol.”
It further goes on to say that “the opportunities to ‘earn' will grow meaningfully,” with the Ethereum merge anticipated for later 2021. This will boost the size of the PoS ecosystem, wrote JPMorgan's analysts, who praised the staking model. The current market cap of PoS tokens is over $150 billion, according to the report.
“We see the ability to earn a positive real return as one of the factors driving the cryptocurrency market to become more mainstream.”
Earning yields through staking can also “mitigate the opportunity cost of owning cryptocurrencies versus other investments” such as US dollars, US Treasuries, or money market funds, says the report adding, “In fact, in the current zero rate environment, we see the yields as an incentive to invest.”
Traditional and cautious institutional investors are all about yield. As Bloomberg reported, a mere 0.05% increase in rates by the Federal Reserve resulted in drawing in $756 billion in funds in just a day from the change, representing a 45% increase from when it was zero.
That’s “just another affirmation of the glut of cash seeking any positive return,” said Jonathan Cohn, a strategist at Credit Suisse Group AG.
However, JPMorgan analysts also warned of the risks, including falling victim to a fraud network and staking involving the locks up periods during which prices could fall with the user unable to sell their crypto assets.
Additionally, inflation is also an issue as more participants in the staking system dilute the value of a single token and decrease individual rewards.