Bitcoin is currently up 15% over the last 30 days, approaching regaining its $100,000 price level.
Macroeconomic data and current tariff status will have a major impact on investor sentiment regarding Bitcoin in the short term.
Historically, Bitcoin followed a four-year cycle interrupted by an extreme boom and bust period.
Something completely unexpected happened with Bitcoin (Cryptography: BTC) April. After a sharp drop in February and March, cryptocurrencies have suddenly started to surge, increasing by 15% over the past 30 days.
For Bitcoin investors, the big question is whether this mini-rally will last until 2025, or whether the new tariffs will dissipate once they actually start kicking. With that in mind, let’s take a look at the possible scenarios for Bitcoin this year.
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Let’s start with the Bitcoin Bull Case scenario. This scenario assumes that the worst of the tariff situation lies behind us. If you buy a message coming out of the White House, you could soon get trade deals with India, Japan and South Korea. It will be the stage for some sort of epic settlement with China and a surge in other trade transactions around the world.
Once that happens, you can go out to the Bitcoin race. Since February, Bitcoin has been struggling to regain its $100,000 level. But optimism about US economic growth this year has led risk-averse investors to return to crypto, which could bring Bitcoin to a record high.
The two main variables here are spot Bitcoin ETF influx and overall investor sentiment, as measured by the Crypto Fear & Greeding Index. Generally speaking, we need to see the Bitcoin ETF inflows surge and the Crypto Fear & Greed Index (measured on a scale of 0-100) move to over 80 as after the election.
So far, that hasn’t happened. For example, the Fear & Greed Index is currently at 51, which is as neutral as you can get.
In the bear case scenario, all the stories about the new trade deal turned out to be mi-killer. Consumer trust weakens, economic growth slows, empty store shelves begin to appear, prices rise sharply, people start talking about the word “R” (recession).
Against this background, Bitcoin still may gather. However, this is only possible if investors begin to lose faith in the US dollar and start moving money to Bitcoin as a potentially secure inventory asset. Already, investors have begun talking about Bitcoin with “digital gold.”
The story continues
If the economic situation deteriorates significantly, the Federal Reserve will need to lower interest rates to provide much-needed stimulus. Historically, lower interest rates have been beneficial for crypto, which also helps push Bitcoin higher.
So even in the bear case scenario, bitcoin may still be gathering. The main variable to look at here is the performance of Bitcoin compared to gold. This is the best possible indicator of whether investors are actually beginning to consider Bitcoin as “digital gold.” In theory, the performance gap between gold and bitcoin in 2025 should begin to narrow. If gold continues to hit its all-time highs, Bitcoin should also start to hit its all-time highs.
So far, I have focused mainly on macroeconomic factors and how they affect investor sentiment regarding Bitcoin. However, it is also important to consider the historic performance of Bitcoin, which tends to follow a rather predictable four-year cycle interrupted by boom and bust periods.
Image source: Getty Images.
While it could be more of an art than science to grasp where we are on the Bitcoin cycle, traditional wisdom is that the starting point for a period of “boom” is half of the latest Bitcoin. In this case, the latest half was done in April 2024. Depending on who you talk to, the half-after “boom” period lasts anywhere between 12-18 months.
So let’s do some napkin calculations. It will be taken to October if you use April 2024 as the start date for the “boom” period, particularly if you are hoping for a robust 18-month boom. For discussion, let’s assume an extra “trump pump” for Bitcoin. It takes us to November.
So far, so good. But do you remember what happened in November 2021 four years ago? Yes, Bitcoin reached an all-time high of $69,000 and looked heading for the moon. No one thought the Crypto Party would end. But it did. Bitcoin prices fell 65% in 2022, and the term “Crypto Winter” has entered a popular slang term.
Of course, there are probably people who say, “It’s not this time.” After all, Spot Bitcoin ETFs didn’t exist in 2021. There were no strategic Bitcoin reserves in 2021. Understood. I feel that’s not the case, especially with the Trump administration’s support of code.
But ignore history for your own risk. If history is a guide, the four-year Bitcoin cycle will soon be over. It doesn’t matter how much the White House signs or how much the Fed trades or how much interest rates will be reduced. If you’re buying Bitcoin now, make sure you’re willing to hold it for at least four years, in preparation for future volatility.
Consider this before purchasing inventory with Bitcoin.
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Dominic Basulto has a position in Bitcoin. Motley Fool has a position and recommends Bitcoin. Motley Fools have a disclosure policy.
Bitcoin spiked as the market stirred up. This could happen next. Originally published by The Motley Fool
