The price of the world’s largest cryptocurrency Bitcoin (CRYPTO:BTC) is up nearly 48% this year, nearly doubling the performance of the broader benchmark S&P 500which also experienced an upswing this year. Bitcoin is currently trading for around $62,700 (as of October 13), below the all-time high of $73,000 reached at the beginning of the year. Will Bitcoin reach 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 asset class, which is only about 15 years old. However, investors view Bitcoin and other cryptos more or less similarly to tech stocks and riskier assets. These assets tend to perform better in a falling interest rate environment because safer assets like Treasury bills don’t pay as much, increasing the likelihood that investors will seek returns. On the other hand, riskier assets do not perform as well in a higher interest rate environment. Nevertheless, Bitcoin performed significantly better than expected during the rising interest rate cycle.

While the Fed actively raised interest rates, Bitcoin underperformed the overall market, but performed better as things calmed down. Since Bitcoin is more volatile than the market, some of this was likely due to expected Fed easing. However, I also believe that some of the outperformance has to do with investors’ growing belief that Bitcoin and its limited supply could serve as a hedge against inflation and a form of “digital gold.” The launch of spot Bitcoin exchange-traded funds (ETFs) also increased the token’s market exposure.

Looking ahead to next year, conditions for Bitcoin and the crypto sector look significantly better. That’s largely because the Federal Reserve began cutting its key interest rate in September, the start of a rate-cutting cycle that the market is expecting. Accordingly CME GroupAccording to the FedWatch tool, which looks at pricing of federal funds rate futures, traders expect the Fed to lower the federal funds rate from the current range of 4.75% to 5% to one by the end of the year target range of 3.25% to 3.50% in 2025. Lower interest rates typically lead to a weaker dollar. History tells us that Bitcoin performs well when the US dollar weakens.

Will there be new highs?

Investors should note that past performance is no indication of future success. Just because Bitcoin has performed well despite a weaker dollar doesn’t mean this will always be the case. While lower interest rates typically result in a weaker dollar, other factors could also impact the dollar, such as oil prices.

The story continues

Still, I believe Bitcoin will reach new highs next year, in part due to the likelihood of a weaker dollar and as the regulatory landscape for Bitcoin becomes clearer. The more Bitcoin becomes integrated into society and as an investment in the general portfolio, the more likely it is that regulators will clarify some of the gray areas surrounding Bitcoin.

The ultimate winner of the US presidential election and the new administration could of course have an impact on the regulatory landscape, but regardless of the winner, I think regulatory clarity is a possibility. What price will Bitcoin reach next year? I’ll leave a specific price target to the analysts, but I think Bitcoin is a good long-term buy that will reach new highs next year and in the years to come.

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Bram Berkowitz holds positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool recommends CME Group. The Motley Fool has a disclosure policy.

Will Bitcoin Reach a New High in 2025? was originally published by The Motley Fool