Grayscale said in an analysis published on Sept. 17 that the Federal Reserve’s latest rate increase looks closer to a mid-cycle adjustment than a major shift in monetary policy. The firm was referring to the Federal Open Market Committee’s Sept. 16 decision to raise the target range by 25 basis points to 3.75% to 4%, while saying the move was intended to bring inflation back to the 2% target more quickly. In Grayscale’s view, this hike, along with a possible second increase later this year, is unlikely to trigger a major change in digital asset markets. The company contrasted the current backdrop with the March 2022 to July 2023 tightening stretch, when the Fed raised rates by a cumulative 525 basis points, lifting returns on cash and yield-bearing assets and increasing the opportunity cost of holding Bitcoin. Grayscale also said the effects will vary across crypto business models, with stablecoin issuers potentially benefiting from higher interest income on reserves, while tokenized bonds and money market funds could draw capital into on-chain financial products. On Sept. 17, Bitcoin briefly rose above $77,000, and short liquidations across the crypto market approached $260 million during the rebound.
Digital asset manager Grayscale said in an analysis published on Sept. 17 that the Federal Reserve’s latest rate hike is closer to a 「mid-cycle adjustment」 than a major turn in monetary policy.
Grayscale draws a distinction from the 2022 tightening phase
On Sept. 16, the Federal Open Market Committee raised its target range by 25 basis points to 3.75% to 4% and said the increase was meant to help return inflation to the 2% target more quickly.
Grayscale said this hike, as well as a possible second increase later this year, is unlikely to cause a major shift in digital asset markets.
The firm noted that from March 2022 to July 2023, the Fed delivered a cumulative 525 basis points of rate hikes. That extended tightening period lifted returns on cash and other yield-bearing assets, while also increasing the opportunity cost of holding Bitcoin. The current setting, by contrast, is a single rate increase after years of hikes, cuts, and pauses.
Impact may differ across crypto business models
Grayscale said the effect of higher rates will not be uniform across the crypto sector.
- Stablecoin issuers may benefit from higher interest income on reserve assets.
- Tokenized bonds and money market funds, with higher yields, may also attract inflows into on-chain financial products.
Bitcoin moved higher as the market rebounded
On Sept. 17, Bitcoin briefly climbed above $77,000. During the rebound, short liquidations across the crypto market approached $260 million.
The item cited Bitcoin.com News.
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