- Grayscale believes persistent inflation and unsustainable budget deficits in the United States will contribute to continued demand for store of value assets like Bitcoin.
- While higher real interest rates may negatively impact crypto in the short-term, Grayscale expects trends like the upcoming Bitcoin halving, economic growth, and increased adoption to create a supportive environment for crypto markets over the longer term.
- Bitcoin’s price experienced a slight dip following the release of the latest high inflation data, mirroring investor sentiment, but an analyst identified the formation of an ascending triangle pattern, suggesting potential for further upside.
Grayscale believes the most recent inflation setback will be short-term pain and long-term gain for Bitcoin.
Recent inflation data shows consumer prices rose more than expected in March. This puts pressure on the Federal Reserve to maintain higher interest rates for longer, hindering their ability to lower rates anytime soon.
Grayscale’s View
According to Grayscale’s managing director of research Zach Pandl, store of value assets like Bitcoin will continue to be in high demand as the U.S. government persists with overspending and keeping rates elevated.
“We expect persistent inflation and unsustainable budget deficits to contribute to continued demand for store of value assets like Bitcoin,” Pandl stated.
He argued that while high inflation means the Fed can’t cut rates soon, upcoming catalysts like the Bitcoin halving in April 2023, economic growth and further crypto adoption will support crypto markets over the long term.
Impact on Bitcoin Price
In the short term, an increase in real interest rates is negative for crypto prices. However, Grayscale believes there will be sustained demand for store-of-value assets longer term.
Historical data shows significant monthly spikes in the 10-year real interest rate have correlated with sharp drops in Bitcoin’s price. For example, between December 2017 and January 2018, the real rate rose from 0.573% to 0.873% while Bitcoin’s price fell 28% from around $12,839 to $9,240.
Following the latest CPI data, Bitcoin’s price dipped slightly to align with the overall market sentiment. But it has since recovered and is trading above $70,000 again.
Conclusion
While short-term pain from high inflation and interest rates may continue to affect Bitcoin’s price, Grayscale remains bullish on crypto’s prospects long term. Key drivers like the upcoming halving, adoption trends and economic growth point to a supportive environment overall.
