Cryptocurrency analytics firm Alphractal has released a detailed assessment of Bitcoin (BTC) and broader market trends, highlighting the relationship between interest rates, S&P 500 and digital assets.
The latest report entitled “Interest Rates, S&P 500 and Bitcoin: Lessons from the Past and Expectations for 2025” examines the historic market response to the Fed’s policy changes and provides important insights to investors navigating the current economic environment.
- Dot-Com Bubble (2000-2002): Fed-Rate hikes contributed to the bursting of high-tech bubbles, and the S&P 500 fell nearly 50% as overrated companies collapsed.
- Subprime Crisis (2007-2009): The S&P 500 fell almost 57% as the Fed raised interest rates to combat inflation and excessive credit, causing a global financial crisis.
Covid-19 crash and recovery (2020): Fed’s emergency rate cuts and liquidity injections initially caused a sharp decline in the S&P 500, then recovered rapidly. Bitcoin was unstable, but ultimately benefited from a low interest rate environment, enhancing its appeal as an alternative asset.
Current Cycle (2022-2025): Market Behavior Disappearance
Since 2022, the Fed has aggressively raised interest rates from near zero to 5.5% to 5.5% from 5.5%. Unlike previous crisis, the S&P 500 remains resilient, reaching new highs in 2024-2025. This makes this an attribute for the following reasons:
- Lower corporate leverage compared to 2008.
- Powerful performance from AI and technology giants such as Nvidia and Microsoft.
- The expectations of moderate interest rate cuts are driving investors’ optimism.
However, the difference between interest rates and stock market performance is a major concern, according to analyst companies. Historically, such breakouts have been preceded by high volatility.
Bitcoin’s historic performance reveals a strong correlation with liquidity conditions.
- 2010-2021 (Low Interest ERA): Bitcoin rose from just cents to $69,000 in 2021.
- Rate Hiking in 2022: BTC experienced a sharp fix, dropping to around $16,000.
- 2024-2025 Stabilization: Bitcoin has regained strength as interest rates fell slightly and integrates its role as an expanded monetary policy and hedge against inflation.
What happens to Bitcoin if the Fed cuts interest rates?
According to Alphractal, the impact of future rate reductions will depend on its nature.
- Emergency cuts (symptom of crisis): If the Fed is forced to cut due to a massive economic shock (as in 2008 or 2020), the early market response is bearish, with both the S&P 500 and Bitcoin experiencing a sharp decline.
- First cut (soft landing): The gentle interest rate cuts seen in 1995-1996 and 2019 can support market growth and benefit both stocks and digital assets.
Market Scenario 2025: Alphractal forecast
Alphractal outlines three possible scenarios for 2025.
- Gradual interest rate reduction: If the Fed cuts interest rates in a controlled way without causing a recession, the S&P 500 can maintain upward momentum, while Bitcoin can benefit from increased liquidity.
- External shock: New crises such as geopolitical instability, bank collapse and other pandemics can cause sharp market declines despite interest rate cuts.
- Sustainably high interest rates: If inflation remains stubborn and the Fed maintains or raises interest rates, a serious market correction similar to that of 2000 or 2008 could continue.
*This is not investment advice.
