Federal Reserve Pause May Send Bitcoin Soaring, Grayscale Predicts

Grayscale's Head of Research, Zach Pandl, believes that if the Federal Reserve pauses interest rate hikes, Bitcoin may see an increase in price. This prediction is based on Grayscale's base scenario, which assumes a pause in rate hikes. Since the Iran war began at the end of February, the US stock market has risen by 9%, while Bitcoin has fallen by 1% and gold has dropped by 20%. Pandl notes that large-scale AI-related expenditures have supported the stock market, but Bitcoin and gold have underperformed due to expectations of a rate hike to combat inflation. Grayscale disagrees with this expectation and believes that the Federal Reserve will pause interest rate hikes.

Pandl points out 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.

Pandl notes that Bitcoin serves a dual purpose in investment portfolios: it is both a scarce digital commodity that can serve as a long-term store of value and a public chain asset that provides exposure to the long-term growth of the crypto industry. Therefore, its function in an investment portfolio is similar but not identical to gold and growth stocks.