Analysis of the Relationship Between Fed Interest Rate Policy and Bitcoin Price Movement

Over the past decade, the price movement of Bitcoin has shown a clear correlation with the Fed's interest rate policy. Bull market peaks typically occur during periods of the strongest expectations for rate hikes, while bear market bottoms are often accompanied by expectations of rate cuts. Currently, the market faces three possible development paths: a restart of rate hikes may lead to a second bottom; rate cuts in the second half of the year could trigger volatility followed by a peak; and rate cuts mid-year may accelerate the bull market process. These different scenarios will determine the future movement of Bitcoin.

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

In the past decade (2015-2025), the Fed has gone through a complete cycle of interest rate hikes, cuts, re-hikes, and pauses. By reviewing this historical period, we find that the turning points in Bitcoin's price are closely related to the Fed's policy nodes, especially reflected in the market expectation of the "premature reaction" phenomenon.

Main findings:

1. Bitcoin bull market peaks usually precede the initiation or acceleration of interest rate hikes, reflecting the market's early trading on tightening expectations.

2. The bottom of the Bitcoin bear market often appears in the later stages of interest rate hikes, during the pause in interest rate hikes, or just before the start of a rate cut cycle, indicating that the market is looking for a bottom when the most pessimistic or accommodative expectations arise.

3. Quantitative easing (QE) or significant interest rate cuts are key factors driving a bull market.

The market is currently in a plateau period of "pausing interest rate hikes" and "temporary interest rate cuts", awaiting the next clear directional signal - whether there will be another interest rate cut and entry into the quantitative easing phase.

2. Three Interest Rate Scenarios Based on Institutional Forecasts

As of now (April 2025), there is a divergence in the market regarding the Fed's next move. By synthesizing the views of several mainstream research institutions, three possible scenarios can be summarized:

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

Some institutions point out that if employment and inflation data is 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 prolonged high interest rate environment and pressure on market liquidity.

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

Most institutions expect the Fed to start cutting interest rates after June, with two cuts projected for the year, potentially lowering the rate to 3.75%-4.00% by the end of the year. This expectation is based on the judgment that the overall trend of inflation is downward, and the economy and employment market are gradually cooling.

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

Some viewpoints suggest that if inflation decreases faster than expected or the economy shows significant weakness, the Fed may implement three or more rate cuts in 2025. The market has largely reached a consensus on at least two rate cuts, but there is disagreement on a more aggressive easing path.

3. Simulation of Bitcoin price movement under different interest rate scenarios

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

1. Worst Case (Interest Rate Risk):

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 final peak of this cycle. Market sentiment has turned pessimistic, and a deep correction may occur, testing key support, and there may even be a second bottom.

2. Benchmark scenario (two interest rate cuts in the second half of the year):

In the second and third quarters, while waiting for clear signals of interest rate cuts, Bitcoin may maintain a high level of wide fluctuations. Once the expectations for interest rate cuts are confirmed and implemented at the end of the third quarter or in the fourth quarter, it could trigger the final sprint of a bull market. The cycle peak may occur in the fourth quarter of 2025 or early 2026, which aligns with some halving cycle model predictions.

3. Best case scenario (beginning interest rate cuts mid-year, three or more times throughout the year):

If an unexpected economic downturn forces the Fed to cut interest rates early, it will significantly boost market risk appetite. Bitcoin is expected to quickly break through the fluctuation range, driving the entire crypto market into a frenzy. The cycle peak may be advanced to the third quarter or early fourth quarter of 2025, with prices potentially reaching higher levels, but the overall duration of the cycle may correspondingly shorten.

Conclusion

The Fed's interest rate decisions remain a key factor in global asset pricing, particularly impacting high-volatility assets such as Bitcoin. Although market sentiment fluctuates, mainstream institutions predict that we are still at a critical juncture of expected oscillation. Investors should maintain sensitivity to market changes while adjusting their positions.