Economist explains why crypto and stock prices may crash in 2025

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As a seasoned investor with a few gray hairs to show for it, I’ve seen my fair share of market fluctuations over the years. While it’s always exciting to see record-breaking highs, I can’t help but feel a tinge of skepticism when analysts start making billion-dollar predictions.

This year has seen a significant rise in both cryptocurrency and stock prices, primarily fueled by robust earnings reports and the decision by central banks to reduce interest rates.

Bitcoin‘s value peaked close to $105,000, setting a new record, and the overall worth of all cryptocurrencies soared by approximately 120%. Meanwhile, significant U.S. stock indices such as the Nasdaq 100, Dow Jones, and S&P 500 also experienced an increase exceeding 20%.

Experts are hopeful that these investments will keep expanding, with firms like Oppenheimer forecasting an increase in the S&P 500 from approximately 6,070 to 7,100. This optimism stems from strong underlying factors.

As an analyst, I find myself echoing the thoughts of Matt Hougan, the Chief Investment Officer at Bitwise, who envisions the potential price of Bitcoin soaring to an astounding $3 million. This forecast is rooted in the increasing adoption of Bitcoin by corporations and governments as a valuable reserve asset.

Mark Zandi explains why crypto and stocks may crash in 2025

Mark Zandi, an economist from Moody’s, has expressed concern that both stocks and cryptocurrencies are currently overpriced. According to him, the reason they haven’t experienced a significant downturn is due to a lack of any major negative triggers in the market.

I’ve argued that most asset markets appear overvalued, bordering on frothy. Stocks, corporate bonds, single family housing, crypto and gold, quickly come to mind. But what could be the catalyst for them to selloff? How about a meaningful correction in the Treasury bond market.

— Mark Zandi (@Markzandi) December 8, 2024

According to him, the driving factor for change is expected to stem from the government bond market, which has witnessed significant growth recently. To put it in perspective, the U.S.’s public debt currently exceeds $36.2 trillion and increases approximately $1 trillion every four months.

As a crypto investor, I find myself pondering over the potential volatility of the bond market in 2025. This forecast stems from the Federal Reserve’s decision to exit quantitative tightening. Given this scenario, I anticipate increased turbulence due to their actions.

Consequently, it is anticipated that hedge funds purchasing these bonds will leave in large numbers once indications of issues become apparent. Simultaneously, it is predicted that U.S. deficits will continue to increase during the Trump administration.

As an analyst, I anticipate that bond yields will surge, which may prompt a shift away from inflated assets such as stocks and cryptocurrencies towards more stable investment options.

Over the past, it has been observed that the values of cryptocurrencies and stocks tend to decrease when interest rates on bonds are increasing. This can be seen clearly in the events of 2022, where the yield on a 10-year bond surged from 1.33% to 4.3%, as the Federal Reserve raised interest rates to control rising inflation.

2018 saw a significant drop for Bitcoin, with its value plummeting approximately 64%. In comparison, the S&P 500 and Dow Jones experienced declines of 19% and 8.8%, respectively. However, this year has seen a resurgence for these assets as bond yields decreased and the Federal Reserve initiated interest rate reductions.

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2024-12-09 18:50