Bitcoin February 2025 Update

The Federal Reserve's preferred inflation measure, the personal consumption expenditures (PCE) price index, showed a slight downtick in January, rising 0.3% monthly with a 12-month rate of 2.5%, breaking the trend of consecutive monthly increases. Core inflation, excluding food and energy, rose to 3.3%, from 3.2% in December. Energy prices surged 1.1% monthly while, shelter costs continued to be a problem for inflation, rising 0.4% on the month and accounting for about 30% of the entire increase. Food prices jumped 0.4%, pushed by a 15.2% surge in egg prices related to ongoing problems with avian bird flu that have forced farmers to destroy millions of chickens. The bureau said it was the largest increase in egg prices since June 2015 and it was responsible for about two-thirds of the rise in food-at-home prices. Egg prices have soared 53% over the past year. This mixed picture underscores the Fed’s challenge: while core inflation is trending downward, energy volatility and sticky services costs require cautious policy calibration. However, personal spending and real personal spending fell 0.2% and 0.5% MoM respectively - the biggest drops in roughly four years. 

Powell told members of the Senate Banking Committee that he thinks the Fed doesn’t need to be in a rush to lower rates as it evaluates progress on inflation and as President Donald Trump continues plans to levy tariffs against imports. Expectations for a March rate cut are 7%, while a May rate cut is also unlikely at 30%. The Fed's recent consecutive rate cuts in September and November 2024, totaling 0.75 percentage points, reflected growing confidence in inflation's trajectory toward the 2% target, though officials are seemingly more hawkish and maintaining a cautious approach to future rate reductions. As of March 2025, there is an implied 70% probability that the Fed will cut only once in 2025. 

BTC's correlation materially rose in the first half of February as the prices fell in tandem with the broader stock market and for seemingly similar macro-related reasons before returning to negative territory. President Trump's announcements can create divergent impacts on crypto versus tech stocks. It should be noted that BTC is not always an uncorrelated asset, and as it becomes more integrated into the financial system, it increasingly moves in response to geopolitical factors that affect other major assets. Below we show the 10-day rolling correlation between the NASDAQ QQQ ETF and BTC over the last four months.

Historically, February has been a very strong month for BTC, with an average return of +13.4% and a median of +12.2%. February 2025 was certainly a break in this trend as BTC recorded a 17% decline, the worst February in over ten years. March is usually a good month for BTC but this “cycle” doesn’t seem to match historical trends.