Analysis of the Correlation between Fed Interest Rate Policy and Bitcoin Price Movement

In the past decade, the price movement of Bitcoin has shown a close connection with the Fed's interest rate policy. Typically, the peak of Bitcoin's bull market occurs when the expectations for interest rate hikes are strongest, while the bottom of the bear market is often accompanied by expectations of interest rate cuts.

Currently, the market faces three possible development paths:

1. Restarting interest rate hikes may lead to a second bottom.
2. Starting in the second half of the year, cutting interest rates may cause volatility before reaching a peak.
3. Starting to cut interest rates mid-year may accelerate the bull market process.

These different paths will determine the future price movement of Bitcoin. This article will delve into the potential development directions of Bitcoin under these three scenarios, helping readers fully understand the interaction between the macro economy and the cryptocurrency market.

1. Review of the Fed's Ten-Year Interest Rate Policy and Its Impact on Bitcoin Price

In the past decade (around 2015-2025), the Fed has gone through a complete cycle of interest rate hikes, cuts, subsequent hikes, and pauses. By examining this history, we find a significant correlation between key turning points in Bitcoin prices and the Fed's policy milestones, particularly the market's expectation of an "early reaction" phenomenon is worth noting.

The main observations are as follows:

1. The peak of Bitcoin's bull market usually occurs before the actual initiation or acceleration of interest rate hikes, reflecting the market's anticipation of tightening.

2. The bottom of the Bitcoin bear market often occurs in the later stages of interest rate hikes, during the pause in interest rate hikes, or just before the beginning of a rate cut cycle. This indicates that the market looks for a bottom when the most pessimistic or accommodative expectations emerge.

3. Quantitative easing (QE) or large-scale interest rate cuts, known as "flooding the market" policies, are important factors driving a bull market.

The comparison of the Fed's main interest rate policy and Bitcoin's key price movements over the past decade clearly shows the "time lag" between the two. Whether it was the bull market peaks in 2017 or 2021, they occurred before the "hammer" of interest rate hikes actually fell or before the most intense rate hikes. The bottoms of the bear markets, on the other hand, are often accompanied by a shift in expectations towards interest rate cuts.

Currently, it is in a "pause on interest rate hikes" and "temporary rate cuts" platform period, and the market is waiting for the next clear directional signal—whether it can cut rates again and enter the quantitative easing "massive liquidity" phase.

2. Analysis of Three Interest Rate Scenarios Based on Institutional Forecasts

Currently (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 have summarized three possible scenarios:

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

Some institutions point out that if employment and inflation data are unexpectedly strong, the possibility of discussing interest rate hikes within the year cannot be ruled out. Tariff policies and geopolitical factors may push up inflation, forcing the Fed to maintain a tight policy, leading to a sustained high interest rate environment and continued pressure on market liquidity.

2. Benchmark Situation: Start interest rate cuts in the second half of the year, with a total of 2 interest rate cuts for the year.

Most institutions expect the Fed to start cutting interest rates after June, with two rate cuts anticipated throughout the year, potentially lowering the rate to 3.75%-4.00% by the end of the third quarter. This expectation considers that although inflation has some stickiness, the overall trend is downward, and the economy and job market are expected to gradually cool down.

3. Best case scenario: Start cutting interest rates in the middle of the year, with 3 or more rate cuts throughout the year.

Some optimistic forecasts suggest that if inflation decreases faster than expected or the economy shows significant weakness, the Fed may implement three or more interest rate cuts in 2025. The market has largely reached a consensus that there will be at least two interest rate cuts in 2025, but there are differences regarding a stronger easing cycle.

3. Simulation of Bitcoin Price Movement Under Three Interest Rate Scenarios

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

1. Worst case scenario (facing interest rate hike risk):

• Price movement analysis: If an interest rate hike risk is confirmed, Bitcoin may face selling pressure in the second quarter of 2025 and beyond. The previous high may become the ultimate peak of this cycle. Market sentiment may shift to pessimism, leading to a deep correction, and there may even be a second bottom.
• Cycle peak judgment: The peak may have already passed, and there is a high probability that 2025 will be in a downward continuation or bottom consolidation phase.

2. Baseline scenario (cut interest rates in the second half of the year, 2 times in total):

• Price Movement Projection: During the waiting period for clear interest rate cut signals in the second and third quarters, Bitcoin may maintain a high-level wide fluctuation. Once the interest rate cut expectations 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 surge of the bull market.
• Cycle peak judgment: It may occur in the fourth quarter of 2025 or early 2026, which aligns with some halving cycle model predictions. It should be noted that when the interest rate cut news is realized, the market may have fully priced it in, and even a "sell the fact" pullback may occur.

3. Best case scenario (start of interest rate cuts in the middle of the year, 3 times or more throughout the year):

• Price Movement Analysis: If the economy unexpectedly weakens and leads the Fed to cut interest rates ahead of schedule, it will significantly boost market risk appetite. Bitcoin is expected to quickly shake off the fluctuations and launch a strong offensive, driving the entire crypto market into a frenzy.
• Cycle peak judgment: It may be advanced to the third quarter or early fourth quarter of 2025. An earlier arrival of liquidity easing could push prices to higher levels, but the duration of the entire cycle may correspondingly shorten.

Summary

The Fed's interest rate decisions remain an important reference for global asset pricing, especially for high volatility assets like Bitcoin. Although current market sentiment is fluctuating, according to mainstream institution forecasts, we are still at a critical juncture of expected swings. When adjusting investment strategies, it is recommended to maintain moderate optimism while reducing positions.