Grayscale: Fed Rate Hike Is a Mid-Cycle Adjustment, Not a Repeat of 2022 Tightening

Odaily News: Digital asset management firm Grayscale said in an analysis published on September 17 that the latest Federal Reserve rate hike is closer to a "mid-cycle adjustment" than a major monetary policy shift.

The Federal Open Market Committee raised its target rate range by 25 basis points to 3.75% to 4% on September 16, saying the hike was aimed at bringing inflation back to its 2% target more promptly. Grayscale believes this hike, and a possible second one later this year, is unlikely to cause major changes in the digital asset market.

Grayscale noted that from March 2022 to July 2023, the Fed raised rates by a cumulative 525 basis points, and sustained tightening boosted returns on cash and interest-bearing assets while increasing the opportunity cost of holding Bitcoin; the current environment, by contrast, is a single hike after years of rate increases, cuts and pauses.

Grayscale said the impact of rate hikes will vary by crypto business model. Stablecoin issuers could benefit from higher interest income on reserve assets, and higher yields on tokenized bonds and money market funds could also attract capital into on-chain financial products. On September 17, Bitcoin briefly rose above $77,000, and short positions liquidated in the crypto market during the rebound approached $260 million. (Bitcoin.com News)