Analysis of the correlation between Bitcoin price movement and Fed interest rate policy

In the past decade, the peaks of Bitcoin's bull markets and the bottoms of bear markets have been closely related to the Fed's interest rate policies. Typically, bull market peaks occur when rate hike expectations are strongest, while bear market bottoms are accompanied by a shift in rate cut expectations.

Currently, the market faces three possible development paths:

1. Restarting interest rate hikes may lead to a second bottom.
2. Lower interest rates in the second half of the year may trigger a震荡后冲顶.
3. Mid-year interest rate cuts may accelerate the bull market process

These paths will determine the future price movement of Bitcoin. Let's delve into the game theory between the macroeconomy and prices.

I. Review of the Fed's Ten-Year Interest Rate Policy: How Do Bitcoin's "Top" and "Bottom" Correspond?

From 2015 to 2025, the Fed experienced a complete cycle of interest rate hikes, cuts, and pauses. By reviewing this history, we find a significant correlation between the turning points of Bitcoin's price and the Fed's policy nodes, especially the "preemptive reaction" phenomenon of market expectations.

Main observations:

1. Bitcoin bull market peaks usually precede the initiation or acceleration of interest rate hikes, reflecting the market's anticipation of tightening.
2. The Bitcoin bear market bottom often occurs in the later stages of interest rate hikes, during the pause of interest rate hikes, or just before the start of a rate cut cycle, indicating that the market is seeking a bottom when the most pessimistic or loose expectations arise.
3. Quantitative easing (QE) or rapid interest rate cuts, known as "big water" policies, are important factors driving the bull market.

The comparison of the Fed's main interest rate policies over the past decade with the key movements of Bitcoin shows that there is a significant "time lag" between important turning points in Bitcoin's price and the Fed's policy cycle. Whether it's the peak of the bull market in 2017 or 2021, it occurred just before the "hammer" of interest rate hikes truly fell or before the strongest rate hikes. Conversely, the bottoms of bear markets are often accompanied by a shift in expectations towards interest rate cuts.

Currently in a "pause on interest rate hikes" and "temporary rate cut" plateau, the market is waiting for the next clear directional signal - whether another rate cut can be made, entering the "quantitative easing" phase of "large-scale monetary expansion."

II. Interest Rate Projection: Three Scenarios Based on Institutional Forecasts

As of now (April 2025), there is a divergence in the market regarding the Fed's next move. Based on the views of several mainstream research institutions, we summarize three possible scenarios:

1. Worst case: facing interest rate hike risks in 2025-2026

Some institutions point out that if employment and inflation data unexpectedly remain strong, the possibility of discussing interest rate hikes within the year cannot be ruled out. At the same time, the rising "stagflation risk" and inflation stickiness may support an extension of the policy pause. Tariff policies, geopolitical factors, and other elements may exert upward pressure on inflation, forcing the Fed to maintain a tightening policy, resulting in a prolonged high-interest-rate environment and market liquidity under pressure.

2. Baseline Scenario: Start interest rate cuts in the second half of the year, 2 times for the whole year

Most institutions predict that the Fed will begin to cut interest rates after June, with two rate cuts expected over the year, potentially lowering rates to 3.75%-4.00% by the end of the third quarter. These views suggest that although inflation is sticky, the overall trend is downward, and the economy and job market will gradually cool. The market may fluctuate in waiting during the first half of the year, with the rate cut cycle starting in the second half.

3. Best case scenario: Start cutting interest rates mid-year, 3 times or more throughout the year.

Some institutions expect the first interest rate cut to take place in June, with a total of 3 cuts (75 basis points) by 2025, bringing the year-end rate down to 3.50%-3.75%. Market expectations indicate a high likelihood of 3 to 5 rate cuts throughout the year, reflecting a growing bet on an aggressive easing path.

III. Bitcoin Price Projection: Price Movement Predictions Under Three Interest Rate Scenarios

Based on the three interest rate scenarios mentioned above, we extrapolate the future price movement of Bitcoin:

1. Worst case scenario: the top has appeared or a secondary bottom is being tested, bear market mentality dominates.

If the market confirms the existence of interest rate hike risks, Bitcoin may face selling pressure in the second quarter of 2025 and beyond. Previous highs may become the ultimate peak of this cycle. Market sentiment will turn pessimistic, and a deep correction may occur, testing the key support below, and the possibility of a second bottom cannot be ruled out.

Cycle peak judgment: It can be basically confirmed that the peak has passed, and in 2025, it is highly likely to be in a downward continuation or bottom fluctuation stage.

2. Benchmark situation: patiently oscillating, aiming to hit the peak area by the end of the year.

During the second to third quarter, while waiting for clear signals of interest rate cuts, Bitcoin may maintain a high level of wide fluctuations. Market sentiment will fluctuate with the data. Once the expectations for interest rate cuts are confirmed and the first rate cut is implemented at the end of the third quarter or in the fourth quarter, it may trigger the final sprint of a bull market, but this is more likely to be a "last train" market driven by sentiment and liquidity expectations.

Cycle peak judgment: It may occur in the fourth quarter of 2025 or early 2026, which aligns with some predictions of the halving cycle model. It is important to note that when the interest rate cut news is realized, the market may have already priced it in, and even a "sell the fact" correction may occur. The real price peak may appear when the expectations for interest rate cuts are strongest but not fully realized.

3. Best case scenario: bull market accelerates, peak arrives earlier and may be higher.

If an unexpected economic downturn forces the Fed to cut interest rates early, it will greatly boost market risk appetite. Bitcoin is expected to quickly break out of the consolidation and launch a strong offensive, driving the entire crypto market into a frenzy.

Peak cycle judgment: It may be advanced to the third quarter or early fourth quarter of 2025. Earlier liquidity easing may boost prices to higher levels, but the duration of the entire cycle will be correspondingly shortened.

4. Summary

The Fed's interest rate decisions remain an important reference for global asset pricing, especially for highly volatile assets like Bitcoin. The current market is at a key point of expectation swings; although some feel numb to market performance, mainstream institutions still predict different possibilities. While adjusting positions, maintaining a moderate level of optimism may be a wise choice.