Key Insights
- Grayscale says Bitcoin could be close to its current cycle low under its base-case outlook.
- The CLARITY Act, Federal Reserve policy, and Strategy’s financial position remain the market’s main catalysts.
- The firm expects moderate downside instead of a deep bear market because institutional demand remains resilient.
Bitcoin could be approaching the bottom of its current market cycle if three major risks improve during the coming months, according to asset manager Grayscale.
The firm’s latest market note identifies progress on the CLARITY Act, stronger financial conditions at Strategy, and a pause in Federal Reserve rate hikes as the key developments that could stabilize prices and support the next phase of the market.
Grayscale Head of Research Zach Pandl said the firm’s base-case outlook assumes lawmakers approve the CLARITY Act, Strategy strengthens its balance sheet, and the Federal Reserve keeps interest rates unchanged. However, he warned that failure on those fronts could result in additional, although limited, downside.
Policy and macro events now drive market direction
Pandl said recent price weakness followed changing expectations for US monetary policy. Markets previously expected a more accommodative Federal Reserve leadership. Instead, persistent inflation and a more hawkish policy outlook increased expectations that interest rates could rise again before year-end.
Higher interest rates generally reduce demand for risk assets because investors can earn stronger returns from cash and government bonds. That has put digital assets and traditional stores of value under pressure once again.
Additionally, Grayscale mentioned the Digital Asset Market CLARITY Act as a significant regulatory catalyst. The bill would create the framework for federal digital asset markets and clearer regulations for exchanges, token issuers and blockchain developers.
The bill passed committee, and has since been added to the Senate calendar. Even so, lawmakers must still debate amendments and secure enough votes before it can become law. Meanwhile, disagreements over stablecoin rules, conflict-of-interest provisions, illicit finance measures, and legislative scheduling continue to slow progress.
Pandl said successful passage could remove a major source of regulatory uncertainty. Conversely, another delay would likely keep institutional investors cautious while market sentiment remains fragile.
Key factor Potential market impact
CLARITY Act passes: Greater regulatory certainty and stronger institutional participation
Federal Reserve pauses rate hikes: Improves liquidity and supports demand for risk assets
Strategy strengthens balance sheet: Reduces concerns over forced deleveraging in crypto markets
CLARITY Act stalls or Fed tightens: Raises downside risk for digital assets
Strategy and institutional demand remain central
Grayscale also identified strategy as another important variable for the broader market. Recent reports showed the company’s Bitcoin holdings temporarily moved below acquisition cost after prices dropped under $60,000. Its stock also traded below the value of its digital asset holdings, raising concerns about financing conditions.
According to the report, additional deleveraging among digital asset treasury companies could increase market pressure if financing becomes more difficult. That scenario forms part of Grayscale’s downside outlook alongside tighter monetary policy and regulatory delays.
Despite those risks, the firm does not expect a repeat of previous bear markets that erased roughly 80% of Bitcoin’s value from peak to trough. Instead, Grayscale believes stronger institutional participation has changed the market structure.
The company also cited the growth of regulated investment products, the continued expansion of stablecoins, and the increased activity in tokenization.
Medium to long-term outlook is favourable
Grayscale maintained that the correction is not a structural failure, but another “cyclical decline. Additionally, the report stated that long-term drivers still believe in the digital asset market even with the uncertainty in the present market.
Those factors are increasingly high government debts, loss of trust in traditional financial institutions, wider adoption of blockchain and ongoing developments in artificial intelligence that can propel blockchain use cases.
Pandl said investors will want to keep an eye on any changes to the CLARITY Act in the Senate and on the Federal Reserve’s upcoming policy meetings. The events are likely to be decisive in deciding whether Bitcoin has made its current cycle low or is in for another period of moderate weakness.
Grayscale thinks that the demand from institutions will help to buffer future declines, unlike previous declines in the market. Therefore, the company considers Bitcoin to still be in a long-term uptrend despite the volatility.
Conclusion
According to Grayscale’s latest evaluation, the outlook of the market is centered around regulation, monetary policy and the financial stability of corporations. As the CLARITY Act moves forward, Strategy’s finances get more positive, and the Federal Reserve does not hike interest rates further, Bitcoin may already be trading near its current cycle low.
Whether those catalysts all turn against Bitcoin, the asset could see further declines, but Grayscale believes any downward trends will be “significantly less severe” than the previous ones.
