As Markets Churned, Bitcoin Surged. Here's What Could Happen Next.
Macroeconomic data and the current tariff situation will heavily influence investor sentiment about Bitcoin over the short run.
Historically, Bitcoin has followed four-year cycles that are punctuated by periods of extreme boom and bust.
Something completely unexpected happened with Bitcoin (CRYPTO: BTC) in April. After falling precipitously in February and March, the cryptocurrency suddenly began surging and is now up 15% over the past 30 days.
For Bitcoin investors, the big question is whether this mini-rally is going to last through 2025 or whether it will dissipate once the new tariffs really begin to kick in. With that in mind, here's a look at possible scenarios for Bitcoin this year.
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Let's start with the bull-case scenario for Bitcoin. This scenario assumes that the worst of the tariff situation is behind us. If you buy into the messaging coming out of the White House, then trade deals with India, Japan, and South Korea could be coming soon. That would set the stage for some kind of grand rapprochement with China and a flurry of other trade deals around the world.
Once that happens, it could be off to the races for Bitcoin. Ever since February, Bitcoin has struggled to regain the $100,000 level. However, with greater optimism about U.S. economic growth this year, risk-averse investors might start to pile back into crypto, and that could lead to Bitcoin soaring to another all-time high.
The two primary variables here are spot Bitcoin ETF inflows and overall investor sentiment, as measured by the Crypto Fear & Greed Index. Generally speaking, we need to see Bitcoin ETF inflows surging and the Crypto Fear & Greed Index (which is measured on a scale of 0-100) moving to 80 or higher, as it was after the election.
Thus far, that hasn't happened. For example, the Fear & Greed Index currently sits at 51, which is just about as neutral as you can possibly get.
In a bear-case scenario, all the talk about new trade deals turns out to be a mirage. Consumer confidence weakens, economic growth slows, empty store shelves start to appear, prices soar, and people start talking about the "R" word (recession).
Against this backdrop, Bitcoin still has the potential to rally. But this is only if investors begin to lose confidence in the U.S. dollar and start to move their money into Bitcoin as a potential safe-haven asset. Already, investors have started to talk about Bitcoin as "digital gold."
If the economic situation deteriorates significantly, then the Federal Reserve might need to step in and lower interest rates in order to provide a much-needed stimulus. Historically, the lowering of interest rates has been beneficial for crypto, and this could also help to push Bitcoin higher.
So, even in a bear-case scenario, Bitcoin might still rally. The primary variable to watch here is Bitcoin's performance compared to gold. This will be the best possible indicator of whether or not investors are really beginning to view Bitcoin as "digital gold." In theory, the performance gap between gold and Bitcoin in 2025 should begin to narrow. If gold continues to hit new all-time highs, then Bitcoin should start hitting new all-time highs as well.
Thus far, I've primarily focused on macroeconomic factors and how they influence investor sentiment about Bitcoin. But it's also important to take into account the historical performance of Bitcoin, which tends to follow fairly predictable four-year cycles that are punctuated by periods of boom and bust.
While it can be more of an art than a science to figure out where we are in any Bitcoin cycle, the conventional wisdom is that the starting point of any "boom" period is the most recent Bitcoin halving date. In this case, the most recent halving took place in April 2024. Depending on whom you talk to, the "boom" period following any halving lasts anywhere from 12 to 18 months.
So, let's do a few back-of-the-napkin calculations. If we use April 2024 as the starting date of the "boom" period and then assume a particularly robust 18-month boom, that takes us to October. For the sake of argument, let's assume an extra "Trump pump" for Bitcoin. That takes us to November.
So far, so good. But remember what happened four years ago, in November 2021? Yes, Bitcoin hit an all-time high of $69,000 and seemed to be headed to the moon. Nobody thought the crypto party would ever end. But it did. The price of Bitcoin collapsed by 65% in 2022, and the term "crypto winter" entered the popular vernacular.
Of course, there will be those who say, "It's different this time." After all, the spot Bitcoin ETFs didn't exist back in 2021. There was no Strategic Bitcoin Reserve back in 2021. Big institutional investors weren't piling into Bitcoin as they are now. I get it. It does feel different, especially with the Trump administration's support of crypto.
But ignore history at your own peril. If history is any guide, the four-year Bitcoin cycle is coming to a close soon, and it won't matter how many trade deals the White House signs or how much the Fed cuts interest rates. If you're buying Bitcoin now, make sure you're prepared for future volatility and are willing to hold for at least four years.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
As Markets Churned, Bitcoin Surged. Here's What Could Happen Next. was originally published by The Motley Fool
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