Why JPMorgan Is Bullish On Staking And Ethereum 2.0

Earning yield through staking can turn out to be one of the best alternative investment opportunities for retail and institutional investors when compared to other asset classes, according to a Morgan Stanley report.

Besides yield, JPMorgan, one of the largest U.S. investment banking giants further stated in a report that intermediaries like Coinbase are likely to become the biggest beneficiary of staking, with expectations that staking will surge to $40 billion by 2025 from $9 billion at present. The authors of the report anticipated that earnings yield by holding cryptocurrency will make digital assets more attractive and help in accelerating mainstream adoption.

“Yield earned through staking can mitigate the opportunity cost of owning cryptocurrencies versus other investments in other asset classes such as US dollars, US Treasuries, or money market funds in which investments generate some positive nominal yield,” the report reads. “In fact, in the current zero rate environment, we see the yields as an incentive to invest.”

What is Staking? A system in which users decide to lock-up money in a network. This process of validating transactions is known as proof-of-stake and it is different from proof-of-work, the system currently Bitcoin, Ethereum, and numerous other networks are using.

Meanwhile, the proof-of-work process uses a lot of computer power and energy to solve complex puzzles.

Ethereum’s Upgrade to Proof-of-Stake Will be Key for Staking Industry

Ethereum’s shift to proof-of-stake after the launch of the long-anticipated ethereum 2.0 next year will be a critical point for the staking economy, the report said. The authors are of the opinion that the staking industry will balloon to $20 billion in just a few quarters after the launch of ethereum 2.0 next year and eventually push the industry valuations to $40 billion by 2025. As Ethereum is on the verge of shifting to proof-of-stake, investors’ ability to make money through staking will enhance its mainstream adoption. And this transition will end mining of the second most valuable cryptocurrency.

Why Is The Staking Industry Gaining Traction?

There are two main reasons behind JPMorgan’s bullish report about the booming staking industry:

1. The End of Coin Mining

Bitcoin, Ethereum, and several other coins always require a lot of energy and computing power for transaction validation. Therefore, there is always carbon emission and environmental risk. The carbon emission from bitcoin mining is one of the hottest topics among regulators and investors and it was among the major reasons for the latest crypto market crash. Meanwhile, the move towards the proof-of-stake validation process will end the mining process for the creation and distribution of cryptocurrency.

2. Yield Through Staking

Locking up money in a network system will not only facilitate the transaction validation process, it will also help investors in earning a decent yield on their investment.

“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,” JPMorgan wrote.

Currently, investors can earn a yield of up to 10% on staking cryptocurrencies including SOL or BNB, according to data from stakingrewards.com. Gemini, the Winklevoss crypto exchange, currently advertises annual yields up to 7.4% on their crypto balances. The JPMorgan report states that Coinbase is likely to earn $200 million from staking in 2022 compared to $10 million in the latest quarter.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.