Grayscale, a crypto asset management company, stated that the rising inflation in the US could lead the Fed to maintain a high interest rate policy for an extended period, potentially having significant consequences for the cryptocurrency market.
In an assessment published by the company’s Head of Research, Zach Pandl, it was stated that the high-interest rate environment could put pressure on Bitcoin but could create a positive picture for stablecoin issuers and the tokenization of real-world assets (RWA).
According to Pandl, the fact that consumer inflation in the US is once again approaching the 4% level significantly limits the room for maneuver for the new Fed Chairman Kevin Warsh regarding interest rate cuts. It was also reported that markets are pricing in a postponement of the first interest rate cut until September 2027.
Grayscale believes that prolonged high interest rates will put pressure on “hedging” assets like Bitcoin. The report notes that Bitcoin, like gold, is a non-interest-bearing asset, making dollar-denominated interest-bearing products more attractive in a high real interest rate environment. This, it adds, could increase the cost for investors to hold Bitcoin.
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However, the company remains optimistic about Bitcoin’s long-term outlook. In particular, it noted that progress on crypto regulations in the US, especially the Clarity Act, could offset some of the pressure stemming from high interest rates.
On the other hand, Grayscale believes that the high-interest rate environment could accelerate the tokenization of fixed-income assets. The company noted that the interest rates offered by dollar-denominated fixed-income products already exceed those of many DeFi protocols. For example, USDC lending rates on Aave are around 3.6%, while short-term corporate bond yields reach approximately 4.5%.
The report also noted that stablecoin issuers could significantly benefit from the high-interest rate environment. Specifically, the prohibition of paying user interest on stablecoins under the GENIUS Act would allow issuers to retain yields from reserve assets as direct income. According to Grayscale, every 25 basis point increase in short-term interest rates could contribute approximately $190 million to Circle’s revenue.
*This is not investment advice.
