Grayscale's research director Zach Pandl believes that if the Federal Reserve pauses interest rate hikes, Bitcoin may see an increase. The US stock market has risen by 9% since the start of the Iran war at the end of February, while Bitcoin has fallen by 1% and gold has dropped by 20%. Despite significant spending related to AI supporting the stock market, Bitcoin and gold have underperformed due to expectations that the Federal Reserve will raise interest rates to combat inflation. Grayscale disagrees with this expectation, instead believing that the Federal Reserve will pause interest rate hikes.
Pandl noted that since the start of the Iran war, one-year Federal Reserve interest rate expectations have risen by about 60 basis points, with around half of Federal Reserve officials believing a rate hike in 2026 may be appropriate. The European Central Bank has already raised interest rates. As a non-interest-bearing monetary asset, gold and Bitcoin compete with fiat currencies, and an increase in real interest rates will raise the opportunity cost of holding them, suppressing demand.
Bitcoin serves two purposes in a portfolio: as a scarce digital commodity that can store value long-term, and as a public chain asset providing exposure to the growth of the cryptocurrency industry. If the likelihood of interest rate hikes decreases, aligning with Grayscale's basic scenario, Bitcoin may catch up with stock performance.