Grayscale: If the Federal Reserve pauses rate hikes, Bitcoin may see an increase

According to ChainCatcher, Zach Pandl, Head of Research at Grayscale, stated that if the Federal Reserve pauses interest rate hikes, Bitcoin may experience an increase. Since the start of the Iran war at the end of February, the US stock market has risen by 9%, Bitcoin has fallen by 1%, and gold has dropped by 20%. Although large-scale AI-related expenditures have supported the stock market, Bitcoin and gold have underperformed, partly because the market expects the Federal Reserve may raise rates to combat inflation. Grayscale does not agree with this expectation; their base scenario is that the Federal Reserve will pause interest rate hikes. If this judgment is correct, Bitcoin price may catch up with stock market performance.

Zach Pandl noted that since the Iran war began, 1-year Federal Reserve interest rate expectations have risen by about 60 basis points, and about half of Federal Reserve officials believe that a rate hike in 2026 may be appropriate. The European Central Bank has already raised rates. As non-interest-bearing monetary assets, gold and Bitcoin compete with fiat currencies, and an increase in the real interest rate of fiat currencies raises the opportunity cost of holding Bitcoin and gold, thereby suppressing demand.

Bitcoin has a dual purpose in investment portfolios: on the one hand, it is a scarce digital commodity that can serve as a long-term store of value; on the other hand, it is a public chain asset that provides exposure to the long-term growth of the crypto industry. Therefore, Bitcoin’s function in an investment portfolio is similar but not identical to gold and growth stocks. Zach Pandl stated that if the probability of a rate hike falls, which is in line with Grayscale’s base scenario, Bitcoin may catch up with stock market performance.