Bitcoin is currently trading around $77,250, just three days ahead of the Federal Reserve’s upcoming interest rate announcement. Futures markets indicate an 86.5% likelihood of a quarter-point increase on Wednesday.
Caitlin Long, CEO of Custodia Bank, points out that the true influence has shifted. She asserts that it’s now the Treasury Department, rather than the Federal Reserve, that establishes the framework for digital currencies.
The Fed Controls the Next Three Days
Chair Kevin Warsh is set to announce the decision on September 16, nearly four months post-inauguration. Prediction markets on Kalshi and Polymarket indicate an 80% chance of the same rate hike.
Recent inflation data contributed significantly to market sentiment. Consumer prices increased by 0.4% in August, following a 0.1% rise in July, pushing the annual inflation rate to 3.4%.
The committee appears divided. In July, rates were maintained at 3.50% to 3.75%, but three members expressed dissent, advocating for a rate increase then.
Bitcoin has retraced some gains from its recent surge. On September 4, when BeInCrypto reported that BTC was close to $82,000, the odds of a Fed hike were at 50/50.
Since then, those odds have steadily increased. BTC is trading several thousand dollars lower and has remained relatively stable over the past 24 hours.
Treasury Has Previously Influenced These Markets
This query has historical context. In August, yields on ten-year and thirty-year bonds reached their highest levels in two decades. In response, the Treasury announced on August 19 that it would double its buybacks for longer-term securities to $4 billion per operation.
Yields fell initially after the announcement but quickly rebounded, erasing the downward trend.
Currently, this program is operational from September 9 to November 4. Secretary Scott Bessent has access to funding from a Treasury General Account, which holds nearly $1 trillion.
UBS strategists highlighted this month that the pressing question isn’t if the Fed will take action, but rather the conditions under which it will do so—conditions that are being shaped at the longer end of the bond market.
Why Long Believes the Fed Is Losing the Longer Game
Long observes a significant shift in regulatory authority. The GENIUS Act, which governs dollar-pegged stablecoins, is set to take effect on January 18, 2027. The Treasury and the Office of the Comptroller of the Currency (OCC) have put forward proposed regulations, while the Fed has yet to follow suit.
“It’s evident that the Treasury is gaining considerable authority from the Fed,” stated Caitlin Long, CEO of Custodia Bank, during a recent interview.
Additionally, the Treasury has asserted its influence over which foreign stablecoins can enter the American market. Long anticipates that the rise of tokenized deposits—bank dollars operating on blockchain platforms—could replace stablecoins. US banking organizations have raised concerns about potential deposit exodus following the law’s enactment.
Wednesday will determine the outcome concerning interest rates. However, the broader implications regarding the Treasury’s ability to sustain long-term rates and the eventual establishment of digital dollar regulations extend well into 2027.
Read the full article Bitcoin Faces 87% Fed Hike Odds Wednesday: Will Treasury Save the Rally? by Lockridge Okoth at beincrypto.com