Bitcoin's recent underperformance relative to equities may reverse if the Federal Reserve holds interest rates steady, according to Grayscale Investments.
Back
Bitcoin could rally as Fed holds rates at 3.50%, Grayscale says
Bitcoin's recent underperformance relative to equities may reverse if the Federal Reserve holds interest rates steady, according to Grayscale Investments.
Bitcoin could narrow its performance gap with equities if the Fed refrains from hiking, Grayscale Investments said in a June 22 research note.
"Bitcoin's underperformance relative to equities has coincided with rising Fed rate expectations, and that headwind could subside if policymakers hold off on rate hikes," Grayscale's research team wrote.
The Fed unanimously kept its policy rate at 3.50 percent to 3.75 percent at the June 16-17 FOMC meeting, the first under Chair Kevin Warsh. Bank of America revised its forecast to expect three 25-basis-point increases in September, October and December, while Citigroup still predicts three cuts starting in October. JPMorgan Asset Management expects rates to remain stable through 2026, Chief Market Strategist for Asia Tai Hui said.
The divergence between rate expectations and Bitcoin's price action has widened as OTC liquidity contracted. BTC OTC balances have fallen by 400,000 coins since 2022 to an all-time low, according to CryptoQuant data, indicating reduced market depth that could amplify any relief rally if the Fed signals a prolonged pause.
Bitcoin has underperformed traditional equities in recent weeks as the rate outlook shifted hawkish, Grayscale noted. A steady Fed could remove the primary macro headwind weighing on Bitcoin, potentially narrowing that gap.
The OTC liquidity decline adds a structural dimension to the thesis. With fewer coins available off-exchange, large buy orders could have an outsized impact on spot prices should rate-sensitive capital rotate back into crypto, the data suggest. The sustained drop in BTC OTC balances since 2022 signals shrinking market depth and higher volatility risks for price discovery, according to CryptoQuant.
The rate outlook remains divided among top institutions. Bank of America's hawkish revision — now expecting three hikes this year — contrasts with Citigroup's call for three cuts beginning in October, while JPMorgan Asset Management sees rates steady through 2026. That divergence leaves Bitcoin's macro backdrop uncertain, but Grayscale's analysis suggests the balance of risk tilts bullish if the Fed holds its ground.
The next FOMC meeting is scheduled for July 28-29, where markets will watch for any shift in forward guidance. If the Fed maintains its hold, Grayscale's thesis suggests Bitcoin could recover its relative performance against equities.
This article is for informational purposes only and does not constitute investment advice.
[1] Bitcoin Could Rally if Fed Keeps Rates Steady, Grayscale Says[2] Bitcoin Supply Crunch? OTC Balances Drop by 400,000 BTC Since 2022 - CryptoRank[3] Bank of America Makes a Sharp U-turn: How Many Times and in Which Months is the Fed Expected to Raise Interest Rates? - Cryptonews.net[4] SEC Commissioner Hester Peirce To Leave Agency In November For Regent Law Role - CryptoRank[5] Cardano Price Prediction: Hoskinson Defends IOG’s AI Influencer as ADA Bounces 2% - CryptoRank
