Could the Fed’s Forgotten Mandate Reshape Bitcoin’s Future?

The U.S. Federal Reserve’s potential embrace of a long-neglected “third mandate”—moderate long-term interest rates—has sparked speculation about its broader implications for monetary policy, the U.S. dollar, and crypto markets. The mandate, embedded in the 1913 Federal Reserve Act, could provide legal justification for more aggressive interventions in bond markets, including yield curve control (YCC) and expanded quantitative easing, as highlighted by President Donald Trump’s nominee for the Fed Board, Stephen Miran.

Miran’s appointment has reignited discussions around YCC, a policy that involves the Fed purchasing government bonds to cap long-term interest rates at desired levels. Proponents argue that such a move could lower government borrowing costs amid a national debt of $37.5 trillion and stimulate the housing market by reducing mortgage rates. However, critics view it as a form of financial repression, where monetary policy is used to indirectly suppress interest rates and inflate asset prices.

The potential shift in Fed policy raises questions about the dollar’s trajectory. Lower long-term interest rates could weaken the U.S. dollar, particularly if the Fed increases Treasury bill issuance or implements bond buybacks. A weaker dollar could make dollar-denominated assets like Bitcoin more attractive as an inflation hedge. Christian Pusateri, founder of Mind Network, noted that Bitcoin could absorb significant capital as a preferred safeguard against global financial instability. Arthur Hayes, former CEO of BitMEX, has also expressed optimism, suggesting YCC could drive Bitcoin to $1 million.

While the implications for crypto are largely bullish, the broader financial landscape presents both opportunities and risks. Record U.S. Treasury issuance—projected to exceed $31 trillion this year—could push yields higher, increasing the opportunity cost of holding non-yielding assets like Bitcoin and Ethereum. Higher yields often reduce demand for risk assets, as seen in the 2022 bond sell-off when Bitcoin fell more than 50% alongside rising Treasury yields. Additionally, a stronger dollar, which typically accompanies higher yields, could dampen demand for Bitcoin among overseas investors.

Despite these headwinds, Bitcoin’s finite supply and its role as an inflation hedge may sustain a baseline of investor interest, particularly during periods of monetary expansion. Furthermore, the asset’s low correlation with traditional financial markets could enhance its value as a diversification tool. The evolving regulatory and institutional adoption of crypto may also provide a buffer against volatility, assuming favorable conditions continue.

Analysts are closely watching the Fed’s next moves, particularly as the political climate intensifies and the central bank’s independence is increasingly scrutinized. The upcoming Fed meeting in September, where a rate cut is widely anticipated, could be a pivotal moment in determining the trajectory of monetary policy and its impact on crypto markets. Meanwhile, various predictive models, including power-law and quantitative assessments, suggest Bitcoin could reach $200,000 by the end of 2025, driven by its historical performance and alignment with gold’s price movements.