Bitcoin’s price has tumbled by more than half from its $125,000 cycle peak – but one of the world’s best-known crypto asset managers believes the worst of the damage may already have been done if the US Federal Reserve now draws a line under interest rate rises.
Zach Pandl, head of research at Grayscale, argues that Bitcoin may already have found a floor, despite plunging below $60,000 in the latest sell-off, provided US borrowing costs stop climbing and economic growth holds steady.
Macro forces ‘more important than Bitcoin’s four-year cycle’
In new research, Grayscale sets out two competing explanations for when the current Bitcoin bear market might end.
One model focuses on Bitcoin’s traditional four-year pattern, built around the “halving” events that reduce the pace of new coin issuance. Historically, the firm notes, Bitcoin has:
– Bottomed around one year after its cycle peak, and
– Found a low roughly two-and-a-half years after each halving,
– With previous bear markets often producing drawdowns of about 80%.
On that basis, Grayscale’s analysis suggests Bitcoin could see further selling pressure into September or October. An 80% decline from the $125,000 peak would imply a level far below the recent break under $60,000.
But Pandl backs a second framework, which links Bitcoin’s fortunes to macroeconomic conditions such as economic growth, real (inflation-adjusted) interest rates and Federal Reserve policy. He argues that Bitcoin is behaving more like a “mature” financial asset, increasingly driven by the same forces that move other major markets.
Grayscale also points to stronger institutional participation than in earlier cycles, and says Bitcoin’s growing role in investment portfolios makes macro variables more relevant than halving history when assessing where the market is headed.
Fed policy seen as key to whether Bitcoin has already bottomed
According to Grayscale, past Bitcoin bear markets have frequently coincided with slowing growth or rising real interest rates. The current downturn has unfolded as investors priced in the risk of further Fed tightening and higher real borrowing costs.
If the Fed is now at or near the peak for interest rates and the US economy avoids a sharp slowdown, Pandl believes Bitcoin may not need another steep fall to complete its bear phase.
However, he warns that renewed inflationary pressure – forcing the Fed to lift rates again or keep policy tight for longer – would undermine that more optimistic view.
Grayscale made a similar case in a June market note, identifying Fed policy as one of three key conditions shaping Bitcoin’s chances of forming a durable cycle low. The other two were:
– Progress on the CLARITY Act, a bill to set a federal market structure for digital assets
– An improvement in the financial position of a major listed Bitcoin treasury company it refers to as Strategy
The firm’s “base case” assumed the digital asset market structure bill would pass the Senate, Strategy would shore up its balance sheet, and the Fed would avoid further rate increases. It warned that setbacks on any of those fronts could extend downward pressure on the cryptocurrency.
“If downside risks materialize, we could see bitcoin fall moderately further,” Pandl said.
He cited the possibility that the CLARITY Act fails to clear Congress this year, that digital asset treasury firms continue unwinding leverage, and that the Fed is pushed into more rate rises by persistent inflation.
Regulation and corporate balance sheets in focus
The CLARITY Act is designed to create federal rules for digital asset markets, covering exchanges, developers and token issuers. According to a Senate update cited by Grayscale in an earlier report, the bill has been placed on the Senate calendar after committee approval, but still requires floor debate, potential amendments and 60 votes to pass.
Bitcoin’s slide through the $60,000 mark has heightened concerns around these unresolved policy issues. Previous analysis by crypto.news, referenced by Grayscale, found that outflows from spot Bitcoin exchange-traded funds and leveraged liquidations worsened the plunge as traders tried – and failed – to defend the $60,000 level.
Since its June assessment, Grayscale says Strategy has taken steps that support both its own finances and Bitcoin’s market structure.
Strategy’s $216m Bitcoin sale seen as strengthening balance sheet
A Grayscale Research note published on 6 July examined Strategy’s decision to sell 3,588 Bitcoin for about $216m.
Some investors viewed the move as a sign of financial strain. Grayscale disagreed, arguing that the sale bolstered Strategy’s balance sheet and reduced financing stress.
Strategy used the proceeds to meet preferred-share dividend obligations and rebuild its US dollar reserves. According to Grayscale, the transaction lifted that cash reserve to around $2.55bn, enough to cover nearly 17 months of dividend payments under the obligations then in place.
Pandl wrote that Strategy’s financing structure “remained well supported” despite market worries. The enlarged cash buffer, Grayscale contends, lowers the risk that the company could be forced into emergency fundraising or further large-scale Bitcoin sales in a period of extreme volatility.
Under an updated treasury framework, Strategy may issue new shares or sell Bitcoin when necessary to keep sufficient dollars on hand for dividends. Grayscale says this approach gives the company more flexibility to manage its commitments and removes some uncertainty around its capital structure.
The announcement initially helped push Bitcoin towards $61,000 before the price climbed back above $63,000. Grayscale interpreted the stronger cash position at a major corporate holder as potentially supportive for Bitcoin, by reducing fears of abrupt, forced selling.
Bear-market end still hinges on unresolved risks
Despite its relatively upbeat macro-based outlook, Grayscale stresses that crucial conditions remain unresolved.
The firm says Bitcoin’s current low will stay vulnerable if:
– Inflation forces the Fed into another rate hike or prolonged tight policy
– Economic growth weakens materially, or
– Regulatory and legislative progress stalls
But if growth remains steady and interest rates are left unchanged, Grayscale believes the argument that Bitcoin has already carved out its bear-market bottom becomes more convincing – even after a fall of more than 50% from its latest peak.
