Disclosure: The views and opinions expressed here belong solely to the author and do not represent the views and opinions of crypto.news’ editorial.
The Federal Reserve has a tall order: protecting the US dollar, which is quickly losing its value as BRICS nations explore a post-dollar world. From the Federal Reserve’s perspective, the outlook is unclear because Trump’s policy plans remain unclear. As far as anyone knows, a severe market crash à la 2008 could be on the horizon. The business cycle theory suggests these crashes are a natural part of economic activity.
A crash is seemingly always lurking beneath the surface. In December 2024, the Dow posted its first ten-day losing streak since 1974, partly due to a lackluster rate outlook at the Federal Reserve, which said it would cut rates only two times in 2025. Despite the losing streak, the stock market remains in the midst of the largest bull market in history.
The stock market posted all-time highs 57 times so far in 2024. It hasn’t had a deep, prolonged correction since the 2008 global financial crisis. Markets turned around rather quickly during the March 2020 COVID-19 crash.
The mother of all bubbles
With so much long-term euphoria in the air, now would be an apropos moment for the “mother of all bubbles” to pop. There is a general feeling that stocks will continue to perform well, but general feelings are often wrong.
The big pop could again be averted if the Fed continues to inject liquidity into markets and slash interest rates, meaning more money destined for the stock market. Bitcoin (BTC) has notably never existed in an environment without quantitative easing. How it might behave remains to be seen, theoretically. But, until then, due to inflation and damaging interest rate policies, even Main Street investors have been piling their cash into stocks already.
Meanwhile, the US government debt steadily increases as the government inches closer to needing to undertake extraordinary measures to manage it. With ever-increasing debts, the Fed could pivot to higher interest rates, and the Department of Government Efficiency (DOGE) could usher in an era of fiscal austerity. Beijing could opt to boost consumption, luring investment dollars into China. In other words, there is still a lot of uncertainty in the global economy.
US stock prices outperformed other stock markets throughout 2024. In general, even the celebrated tech sector stocks outperform their profits despite a considerable boost from deficit spending. Eventually, the outperformance will come to an end.
Bitcoin in a market crash
What happens to Bitcoin in such an instance?
The only example to draw is the COVID-19 stock market crash beginning in late February and extending into March. As a recession became unavoidable, the Dow Jones endured its most significant point drop since the 1987 Black Monday crash, even though the Federal Reserve said it would print $1.5 trillion into money markets.
In this instance, markets generally rebounded quickly. That would likely not be the case in the coming bubble pop, which would be more akin to the 2008 bubble crash. In 2020, it is still worth noting that Bitcoin rebounded ahead of many other assets, such as gold. It traded as high as $10,300 in February and as low as $5,002.58 on March 17. It traded at $11,000 by July 28.
A similar scenario would play out today, with Bitcoin falling precipitously but catching a bid ahead of other risk commodities thanks partly to its inelastic nature. In keeping with Bitcoin’s history, it will be a volatile ride down—perhaps as low as $50,000—followed by a steep rebound. Bitcoin has long been in the public mind as digital gold. Should that mindset remain in place, it is perfectly reasonable that from there, $500,000 and $1,000,000 BTC are plausible.
