The Relationship Between Bitcoin Prices and Fed Interest Rate Policies: Review and Outlook

In the past decade, the peak of Bitcoin's bull market and the trough of its bear market have been closely related to the Fed's interest rate policy. Generally, the market peaks when rate hike expectations are strongest and hits the bottom when expectations shift to rate cuts.

Currently, the market faces three possible development paths:

1. Restarting interest rate hikes may lead to a second bottom.
2. A rate cut in the second half of the year may trigger a surge after turbulence.
3. Mid-year interest rate cuts may accelerate the bull market process.

These paths will determine the future trend of Bitcoin. Let's delve into the logic of macroeconomics and price games.

1. Review of the Fed's Ten-Year Interest Rate Policy and Bitcoin Trends

From 2015 to 2025, the Fed went through a complete cycle of interest rate hikes, cuts, and pauses. Observing this period of history, we find a significant correlation between the turning points in Bitcoin prices and the policy nodes of the Fed, especially the phenomenon of market expectations reacting in advance.

Main conclusion:

1. The peak of the Bitcoin bull market usually precedes the initiation or acceleration of interest rate hikes, reflecting the market's anticipation of tightening.
2. The bottom of the Bitcoin bear market often appears during the late stages of interest rate hikes, during pauses in interest rate hikes, or just before the start of a rate cut cycle. The market looks for a bottom when the most pessimistic or loose expectations emerge.
3. Quantitative Easing (QE) or rapid interest rate cuts and other large-scale monetary easing policies are important factors driving the bull market.

The comparison of the Fed's main interest rate policies and key Bitcoin trends over the past decade shows that important turning points in Bitcoin prices occur with a time lag relative to the Fed's policy cycles. The bull market peaks in 2017 and 2021 both occurred before the official start of interest rate hikes or when expectations for rate hikes were strongest. Conversely, the bear market bottoms are often accompanied by expectations of interest rate cuts.

Currently in a "pause on interest rate hikes" and "temporary rate cuts" plateau, the market is waiting for the next clear directional signal—whether there will be another rate cut, entering a new round of quantitative easing.

2. Three Interest Rate Scenarios Based on Institutional Forecasts

According to the views of several mainstream research institutions, we can summarize three possible scenarios:

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

Some institutions warn that if employment and inflation data is unexpectedly strong, there is a possibility of discussing interest rate hikes within the year. Tariff policies and geopolitical factors may exert upward pressure on inflation, forcing the Fed to maintain a tight policy, leading to a sustained high interest rate environment and pressure on market liquidity.

2. Benchmark scenario: Start interest rate cuts in the second half of the year, with two cuts throughout the year.

Most institutions expect the Fed to remain patient in June and then cut interest rates twice in the second half of the year, with rates potentially dropping to 3.75%-4.00% by the end of the third quarter. This view holds that despite sticky inflation, the overall trend is downward, and the economy and job market will gradually cool.

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

Some institutions predict that if inflation declines faster than expected or the economy shows significant weakness, the Fed may implement three or more interest rate cuts in 2025. The market has generally reached a consensus that there will be at least two interest rate cuts in 2025, but there are still differences regarding whether a more aggressive easing cycle will be entered.

III. Bitcoin Price Trends under Three Interest Rate Scenarios

1. Worst case: the top has emerged or a second bottom test, bear market mentality dominates

If the market confirms the risk of interest rate hikes, Bitcoin may face selling pressure in the second quarter of 2025 and beyond. The previous high may be the final peak of this cycle. Market sentiment may turn pessimistic, leading to a deep correction that tests the key support below, and there may even be a second bottom.

2. Benchmark situation: Patient oscillation, year-end impact on the peak area

During the second and third quarters, while waiting for clear signals of interest rate cuts, Bitcoin may maintain a high-level wide-ranging fluctuation. Once the expectation of interest rate cuts is 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 the bull market. The peak of the cycle may occur in the fourth quarter of 2025 or early 2026, which aligns with some halving cycle model predictions.

3. Best Case Scenario: Bull market accelerates, peaks earlier and possibly higher

If an unexpected economic downturn forces the Fed to cut interest rates ahead of schedule, it will greatly boost market risk appetite. Bitcoin is expected to quickly break out of fluctuations and launch a strong offensive, leading the entire crypto market into a frenzy. The peak of the cycle may be brought forward to the third quarter or early fourth quarter of 2025, with earlier liquidity easing possibly pushing prices to higher levels, but the duration of the entire cycle may accordingly shorten.

Summary

The Fed's interest rate decisions remain an important reference for global asset pricing, significantly impacting high-volatility assets like Bitcoin. The current market is at a crucial point of expectation swings; although investor sentiment is becoming cautious, there are still reasons to maintain some hope. While adjusting positions, closely monitoring economic data and policy trends will help grasp market movements.