The price of the world's largest cryptocurrency Bitcoin (BTC +0.94%) has risen nearly 48% this year, almost doubling the performance of the broader benchmark S&P 500, which has also been on a bull run this year. Bitcoin currently trades for around $62,700 (as of Oct. 13), below all-time highs reached earlier this year of $73,000. Will Bitcoin hit a new high in 2025? Let's investigate.
What will the environment be like next year?
Bitcoin and all cryptocurrencies in general are extremely volatile assets. The market still has a lot to learn about this new class of assets that is only about 15 years old. However, investors have more or less viewed Bitcoin and other cryptos similarly to tech stocks and riskier assets. These assets tend to perform better in a falling-rate environment because safer assets like Treasury Bills don't yield as much, making investors more likely to reach for returns. On the other hand, riskier assets don't fare as well in a higher-rate environment. Still, Bitcoin held up much better than expected during the rising interest rate cycle.
Bitcoin Price data by YCharts.
While the Fed was actively raising interest rates, Bitcoin underperformed the broader market but performed better once things settled. Because Bitcoin is more volatile than the market, some of this was likely due to the Fed's anticipated easing. However, I also think some of the outperformance was related to investors' growing belief that Bitcoin and its finite supply could serve as a hedge against inflation and a form of "digital gold." The launch of spot Bitcoin exchange-traded funds (ETFs) also expanded market exposure to the token.
Looking ahead to next year, conditions look much better for Bitcoin and the crypto sector. That's mainly because the Federal Reserve began lowering its federal funds rate in September, the beginning of what the market expects to be an interest rate-cutting cycle. According to CME Group's FedWatch Tool, which looks at futures pricing on the federal funds rate, traders expect the Fed to drop the federal funds rate from its current range of 4.75% to 5% to a target range of 3.25% to 3.50% by the end of 2025. Lower interest rates typically lead to a weaker dollar. History tells us that Bitcoin performs well when the U.S. dollar weakens.
Bitcoin Price data by YCharts.
Will there be new highs?
Investors should note that past performance does not indicate future success. Just because Bitcoin has performed well with a weaker dollar doesn't mean it always will. Additionally, while lower rates typically lead to a weaker dollar, other factors could impact the buck, such as oil prices.
That said, I do believe Bitcoin is poised for new highs next year, partly due to the likelihood of a weaker dollar and as the regulatory picture becomes clearer for Bitcoin. The more integrated Bitcoin becomes with society and as an investment in the general portfolio, the more likely are regulators to clarify some of the gray areas around Bitcoin.
The ultimate winner of the U.S. presidential election and the incoming administration could impact the regulatory landscape, of course, but regardless of the winner, I think regulatory clarity is an eventuality. What price will Bitcoin hit next year? I'll leave a specific price target to the analysts, but I think Bitcoin is a good long-term buy poised for new highs next year and the years to come.
