Cryptocurrencies, as assets highly sensitive to liquidity, are entering a new stage of adapting to a long-term high-interest rate environment.

Written by: Ashrith Rao

Translated by: Chopper, Foresight News

Yesterday, the Federal Open Market Committee (FOMC) announced an increase in the target range for the federal funds rate by 25 basis points to 3.75%-4.00%. The decision was passed unanimously, with Federal Reserve Chair Kevin Walsh taking a firm stance. This is the first interest rate hike by the Federal Reserve since July 2023 and the first policy action taken by Walsh since assuming office.

From the dot plot, it can be seen that 16 out of the 18 committee members expect another rate hike before the end of 2026.

The crypto market itself was not surprised by this rate hike decision, as CME FedWatch data showed that prior to the announcement, the market expected about a 92% probability of a 25 basis point increase.

What truly signaled change was Walsh's speech and his tough policy stance.

Walsh stated at the press conference: "I have a hard time believing that the current overall financial environment is restrictive. Therefore, we are pulling back on some of the accommodative policies." In other words, the Federal Reserve believes the current policy interest rate is still not high enough.

The Pricing Logic of Cryptocurrencies is Being Rewritten

The market has already captured this change. Interest rate swap data indicates that traders expect cumulative rate hikes to reach 75 basis points by mid-2027, which is more aggressive than the median forecast from the Fed's dot plot.

The yield curve is flattening, with the yield on the two-year U.S. Treasury skyrocketing to 4.74%, while the pace of increases in long-term yields is slowing. This clearly indicates that the market expects Walsh to fight inflation at all costs, despite the various costs of tightening monetary policy.

Bitcoin is the best observational sample.

After the announcement, Bitcoin's price fluctuated between $75,000 and $77,000, while Ethereum's price oscillated between $2,370 and $2,450.

On the surface, the market reaction was muted, showing a typical "buy the rumor, sell the news" market. However, underlying data tells a more complex story.

The day before the announcement, U.S. spot Bitcoin ETFs recorded a net outflow of about $450.3 million, the largest single-day outflow since June 25. On the same day, Ethereum ETFs also suffered a significant outflow of $141 million.

From September 8 to 15, Bitcoin ETFs saw a total net outflow of $753.2 million, almost completely reversing the net inflow of about $770 million from September 1 to 4.

Even before the Fed's decision was finalized, the flow of ETF funds had already turned. This indicates that the downward pressure on cryptocurrency prices mainly stemmed from the market's anticipation of macroeconomic adjustments completed in advance, rather than the rate hike decision itself.

Cryptocurrencies are classified as risk assets with longer durations and are inherently more sensitive to fluctuations in discount rates compared to stocks.

Bitget analyst Lewis Huang observed that in the two trading days before the FOMC meeting, Bitcoin's volatility was about four times that of the S&P 500 index. This time, Bitcoin's decline was relatively mild because the deleveraging pressure has peaked.

The Senate's failure to pass the CLARITY Act, combined with the liquidation of over $455 million in leveraged positions in a single day, undoubtedly further depressed market sentiment.

The 10-Year U.S. Treasury Yield Hits 5%: The Elephant in the Room

The interest rate that crypto investors really need to focus on is not the federal funds rate, but the 10-year U.S. Treasury yield. The day before the announcement, the 10-year U.S. Treasury yield reached 5.04%, marking the highest level since 2007.

After the U.S. took military action against Iran in late February, rising oil prices combined with an expanding fiscal deficit led to a continued weakening of the global bond market.

This 25 basis point rate hike by the Federal Reserve is unlikely to change the underlying fundamental trends.

In August, the CPI rose by 3.4% year-on-year, with inflation still posing a core risk. Among these, gasoline prices increased by 27.4% year-on-year, and energy commodity costs surged by 28%.

The issuance scale of U.S. Treasuries is enormous, the fiscal deficit continues to expand, and the Federal Reserve has stopped purchasing Treasuries through quantitative easing.

A consensus is gradually forming in the market: the 10-year U.S. Treasury yield may long remain at the unacceptably high level of 5%.

BMO Capital Markets strategist Vail Hartman noted that if the Federal Reserve does not damage its credibility in fighting inflation this week, it will be hard to shift to a dovish stance.

Before the Fed acted, the market had basically already digested expectations of rising long-term rates. This rate hike by the Fed only confirmed this expectation.

This means that the opportunity cost benchmark for crypto assets continues to rise.

Bitcoin itself does not generate cash flow, and in an environment where the risk-free rate approaches 5%, its valuation logic continues to be challenged.

A recent institutional survey by Bank of America revealed that one-third of fund managers consider "unruly rise in bond yields" to be the biggest tail risk currently, with this risk prioritized above AI bubbles and second-round inflation.

Geopolitics and Stubborn Inflation: Dual Pressure

Walsh significantly revised the policy statement, removing the characterization of rising inflation being attributed to "supply shocks, especially from energy supplies."

The market has yet to fully recognize the importance of this wording adjustment.

This represents a shift in the Federal Reserve's judgment on inflation, no longer viewing it simply as a temporary external shock. On the contrary, the policy statement acknowledges that even if energy prices stabilize, price pressures have already broadly spread and possess persistence.

The Federal Reserve still predicts that core PCE inflation will not return to normal until 2027, and overall PCE inflation will not reach the 2% target until 2029, a year later than previously forecasted.

This will have profound structural impacts on the cryptocurrency industry.

The Federal Reserve will not quickly shift to easing after the energy shock subsides; if inflation remains persistently stubborn, the Fed may continue to maintain a tightening stance.

Lewis Huang proposed a judgment: the pressure from energy prices may ease before inflation itself begins to decline. In other words, even if the first wave of energy price increases recedes, the Federal Reserve may still tighten monetary policy.

Meanwhile, global geopolitical uncertainty amplifies the impact on the financial market environment.

Multiple factors intertwining, such as rising inflation, Iran's restrictions on shipping in the Strait of Hormuz, Israel's threats to energy infrastructure, and oil prices consistently staying above $100, make the path of the Federal Reserve's policy increasingly difficult to predict.

The risk appetite as reflected by ETF outflows, coupled with an increase in cryptocurrency market volatility, further raises the risk premiums.

Walsh's Declaration of Independence and Political Risks

When asked about Trump-related issues, Walsh chose not to comment. This silence is significant in itself.

Faced with Trump's ongoing pressure to maintain the lowest global interest rates, and even threatening to sever trade relations with surplus countries if the Federal Reserve does not lower rates, Walsh opted for a tough rate hike.

This rate hike is both a response to inflation data and a move to establish the Federal Reserve's policy independence.

BlackRock Senior Portfolio Manager Jeffrey Rosenberg stated that the market sees this FOMC meeting as "a crucial moment for Walsh to establish policy credibility," and this decision further solidifies Walsh's credibility as the Federal Reserve Chair.

However, the establishment of central bank credibility is not necessarily a good thing for the cryptocurrency market.

A hawkish central bank gaining market trust will stabilize inflation expectations; but this also means that risk assets will face high discount rate pressures for a longer period.

Where is the New Equilibrium Point for the Crypto Market?

Bitcoin's support level around $75,000 remains strong, but stability does not equate to a market reversal.

The opinion of Delta Exchange research analyst Riya Sehgal is worth noting: the crypto market "has digested this hawkish shock and is currently in a post-event stabilization phase, without entering a clear bullish breakout trend."

Assuming the dollar and U.S. Treasury yields remain at current levels, the market direction will depend on whether Bitcoin and Ethereum can retake recent resistance levels.

Technically, Bitcoin's first resistance range is located at $76,500–$78,000. If it can consistently maintain this range, there may be further upward price movement. On the downside, $75,000 is a key level; once lost, market focus will turn to the $71,300–$72,000 range.

Compared to price points, changes in capital flow are more important.

A recent market report from KuCoin pointed out: the current issue is not just macro headwinds, but the exhaustion of new capital. On-chain data shows that the inflow of new funds has stagnated, and the total supply of stablecoins remains mostly stable.

Walsh's policy statement sends a clear signal to investors that the low-cost capital environment influenced by White House politics will not return in the short term.

Cryptocurrencies, as assets highly sensitive to liquidity, are entering a new stage of adapting to a long-term high-interest rate environment.

New macro data requires us to re-evaluate valuation models that rely on low discount rate assumptions, including future cash flow discount models for DeFi protocols or the "digital gold" premium logic for Bitcoin.

In the remaining time of 2026, the macro environment of the crypto market will be defined by three main factors: a Chair dedicated to maintaining the independence of the central bank, a bond market pricing anchored at the 5% risk-free yield, and inflation exceeding target levels for consecutive years.

The relative stability of Bitcoin's price around $76,000 may only be a brief window of respite in the subsequent oscillating market.