Bank of America and Deutsche Bank now forecast three 25 basis point Federal Reserve rate hikes by December 2026, aligning with new Chair Kevin Warsh’s hawkish inflation stance. This consensus shift signals an end to the monetary easing that previously benefited cryptocurrencies. Higher rates threaten to drain risk liquidity, potentially pressuring digital asset ETPs, institutions, and venture funding based on historical patterns.
Bank of America has revised its forecast to include three Federal Reserve interest rate increases by year-end, totaling 75 basis points. This adjustment followed a strongly hawkish statement on inflation from new Chair Kevin Warsh at his first press conference.
Nine Federal Open Market Committee members support at least one rate increase this year. Deutsche Bank and CME FedWatch have made similar moves, establishing a rare consensus ahead of the next core PCE inflation reading.
Higher policy rates typically drain available capital for risk assets and raise discount rates for future cash flows. CoinShares data shows digital asset ETPs recorded net outflows during the last hiking cycle in 2022-2023.
Institutions, ETFs, and exchanges will face a more difficult capital environment. Developers could also see decreased venture funding as the cost of capital rises.
This marks a significant shift from the 2024-2025 easing period that served as a tailwind for Bitcoin and Ethereum. The Fed’s renewed focus on inflation control ends that supportive monetary policy.
The regulatory focus on digital assets may lessen amid this macroeconomic shift. The new rate environment will also test on-chain liquidity for cryptocurrency markets.
