Bitcoin Eyes Catch-Up Rally as Grayscale Sees Fed Pause Boosting Demand

What to Know

• Grayscale says Bitcoin could rally if Federal Reserve pauses hikes.
• Rising rate expectations and yields continue weighing on Bitcoin.
• ETFs, halving effects, and adoption support long-term Bitcoin demand.

Grayscale Research says Bitcoin could narrow its performance gap with U.S. equities if the Federal Reserve avoids additional rate hikes in 2026. According to the asset manager, rising interest rate expectations have weighed on Bitcoin in recent months, even as stocks continued to move higher. The firm’s latest analysis highlights a growing divergence between Bitcoin and traditional markets since tensions involving the United States, Israel, and Iran escalated on February 28. During that period, U.S. equities gained about 9%, while Bitcoin declined roughly 1%.

According to Grayscale, continued investment in artificial intelligence has played a major role in supporting stock market gains. Technology companies have attracted significant capital, helping equities outperform many alternative assets. Gold, which investors often view as a safe-haven asset, also struggled during the same period. The precious metal declined nearly 20%, reflecting the broader impact of changing monetary policy expectations across financial markets.

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Rising Rate Expectations Continue to Pressure Bitcoin

Grayscale attributes much of Bitcoin’s recent weakness to growing expectations that the Federal Reserve could maintain a restrictive policy stance for longer. The firm noted that one-year Federal Reserve rate expectations have increased by approximately 60 basis points. Consequently, investors have become more cautious toward risk assets, including cryptocurrencies.

Inflation concerns have also remained elevated due to higher energy prices linked to Middle East tensions. As a result, roughly half of Federal Reserve officials now support the possibility of additional rate hikes in 2026. Current U.S. policy rates remain between 3.50% and 3.75%. However, higher real yields have increased the attractiveness of income-generating assets. This trend has reduced demand for non-yielding assets such as Bitcoin and gold.

Beyond the United States, central banks have also adopted tighter monetary policies. The European Central Bank recently raised its deposit rate by 25 basis points to 2.25%, marking its first increase in nearly three years. Additionally, the move reinforced broader risk-off sentiment across global markets.

Grayscale Sees Stronger Conditions for Bitcoin Recovery

Despite recent underperformance, Grayscale maintains a positive long-term outlook for Bitcoin. According to the firm, a pause in further rate hikes could improve liquidity conditions and ease pressure on digital asset valuations. Moreover, Bitcoin continues to benefit from structural factors that support long-term demand. These include reduced supply growth following the 2024 halving, increasing ETF participation, and expanding corporate treasury adoption.

Grayscale also continues to classify Bitcoin as a hybrid asset. The firm argues that Bitcoin combines gold-like scarcity with exposure to the growth of blockchain and digital asset networks. At the time of writing, Bitcoin traded at $62,029.89 after falling 4.61% over the previous 24 hours. Market participants continue monitoring support between $60,000 and $62,500 as they look for signs of a broader recovery.

Bitcoin remains under pressure from higher interest rate expectations. However, Grayscale believes a less restrictive Federal Reserve could create favorable conditions for a catch-up rally against U.S. equities.

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