The Depth Correlation Between Fed Interest Rate Policy and Bitcoin Price Movement

In the past decade, the bull market peaks and bear market troughs of Bitcoin have shown a clear correlation with the Fed's interest rate policy. Typically, Bitcoin's peaks occur when the expectations for interest rate hikes are strongest, while the troughs are often accompanied by a shift in expectations toward interest rate cuts.

Currently, the market is facing three possible development paths:

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

These different paths will determine the future price movement of Bitcoin. This article will analyze in detail the possible performance of Bitcoin under these three scenarios, exploring the logic of the game between the macro economy and the price.

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

Over the past decade (around 2015-2025), the Fed has gone through a complete cycle of interest rate hikes, cuts, and pauses. By reviewing this history, we find that the turning points in Bitcoin's price are closely related to the Fed's policy nodes, especially the phenomenon of the market's "anticipatory reaction" is particularly significant.

Main observations:

1. The peak of the Bitcoin bull market usually precedes the actual start or acceleration of interest rate hikes, as the market tends to trade on tightening expectations in advance.

2. The bottom of the Bitcoin bear market often occurs in the later stages of interest rate hikes, during pauses in interest rate hikes, or just before a rate cut cycle is about to start. The market often looks for a bottom when the most pessimistic or accommodative expectations arise.

3. Policies such as "quantitative easing (QE)" or rapid interest rate cuts that inject large-scale liquidity are important catalysts for driving a bull market.

The comparison between the Fed's main interest rate policies over the past decade and the key price movements of Bitcoin clearly shows the "time lag" relationship between the two. Whether it was during the bull market peaks of 2017 or 2021, these events occurred before the rate hike "hammer" fell or at the time of the strongest interest rate increases. Conversely, the bottoms of bear markets are often accompanied by a shift in expectations towards rate cuts.

Currently, it is in a "pause on interest rate hikes" and "short-term interest rate cuts" plateau. The market is waiting for the next clear directional signal—whether it can enter an interest rate cut cycle again and start a new round of quantitative easing.

II. Interest Rate Outlook: Three Scenario Analyses Based on Institutional Forecasts

As of April 2025, there is a clear divide 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.

A large investment bank pointed out in its report at the beginning of March that despite predicting a rate cut, if employment and inflation data turn out to be unexpectedly strong, the possibility of discussing a rate hike within the year cannot be ruled out. Another financial institution emphasized in its report at the beginning of April the rising "stagflation risk" and inflation stickiness, believing there is ample reason to extend the policy pause period.

Adjustments in tariff policy, changes in geopolitical situations, and other factors may lead to rising inflation, which could force the Fed to maintain a tightening policy, potentially resulting in a high interest rate environment throughout the year, with market liquidity remaining under pressure.

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

Multiple financial institutions predict that the Fed will remain patient until June and then begin to cut interest rates. It is generally believed that there will be two rate cuts in 2025, each by 25 basis points, and by the end of the third quarter, the interest rate may drop to the range of 3.75%-4.00%.

The Fed's March meeting showed that most officials still expect two rate cuts in 2025, with the year-end interest rate dropping to between 3.75% and 4%.

These views suggest that despite some stickiness in inflation, the overall trend is downward, and the economy and job market will gradually cool down. It is expected that the market will fluctuate in a waiting pattern in the first half of the year, with an interest rate cut cycle beginning in the second half.

3. Best case scenario: start interest rate cuts in the middle of the year, with a total of three or more rate cuts throughout the year.

A certain investment research institution expects the first rate cut to take place in June, with a total of 3 rate cuts (75 basis points) in 2025, bringing the year-end interest rate down to 3.50%-3.75%.

According to data from a certain forecasting platform, the most common bet at present is a total of 3 rate cuts (75 basis points) throughout the year, accounting for about 20%. In second place are 4 rate cuts (100 basis points) and 5 rate cuts (125 basis points), accounting for 18% and 13.3%, respectively, reflecting a growing market bet on an aggressive easing path. Meanwhile, the scenario that was most favored at the beginning of the year, "only 2 rate cuts," now has a support rate that has fallen to around 13%.

Overall, the market has basically reached a consensus that "there will be at least two interest rate cuts in 2025", but there is still significant divergence regarding whether a stronger easing cycle will be entered, and expectations have not yet been fully anchored.

These views suggest that if inflation declines faster than expected, or the economy shows signs of significant weakness, the Fed may implement three or more rate cuts in 2025.

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

Based on the three evidence-based interest rate scenarios mentioned above, we extrapolate the upcoming price movement of Bitcoin:

1. Worst-case scenario (interest rate hike risk in 2025-2026): top has been reached or a second bottom is being tested, bear market mentality dominates.

Price Movement Projection: If the market confirms the existence of interest rate hike risks, Bitcoin will likely face selling pressure in the second quarter of 2025 and beyond. The previous high may be the ultimate peak of this cycle. Market sentiment will turn pessimistic, and a deep correction may occur, testing the key support below, and even the possibility of a second bottom cannot be ruled out.

Peak judgment: It can basically be confirmed that the peak has passed, and in 2025, it is highly likely to be in a downward consolidation or bottoming phase.

2. Benchmark situation (cut interest rates in the second half of the year, 2 times in total for the year): Patient oscillation, hitting the peak area by the end of the year.

Price Movement Analysis: During the second to third quarter, while waiting for clear signals of interest rate cuts, Bitcoin is likely to maintain a wide fluctuation at high levels. Market sentiment will fluctuate with economic data. 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, 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 fully priced it in, or even experience a "sell the fact" pullback. The true price peak may form when the expectation of interest rate cuts is strongest but has not yet fully materialized.

3. Best case scenario (start of rate cuts mid-year, 3 or more times throughout the year): bull market accelerates, peak arrives earlier and possibly higher.

Market trend prediction: If the economy unexpectedly weakens, forcing the Fed to cut interest rates earlier, it will greatly boost market risk appetite. Bitcoin is expected to quickly break free from the fluctuation and launch a strong offensive, driving the entire crypto market into a frenzy.

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

Summary

The Fed's interest rate decisions remain an important anchor for global asset pricing, especially significantly impacting high-volatility assets like Bitcoin. Although current market sentiment fluctuates repeatedly, according to predictions from mainstream institutions, we are still at a critical juncture of expected swings. While adjusting positions, investors may maintain a cautiously optimistic attitude, closely monitoring economic data and policy changes, and preparing for various possible responses.