Bitcoin January 2025 Update

Market Commentary

The Federal Reserve's preferred inflation measure, the personal consumption expenditures (PCE) price index, showed an uptick in December, rising 0.3% monthly with a 12-month rate of 2.6%, marking the third consecutive monthly increase. Meanwhile, core inflation, excluding food and energy, cooled slightly to 3.2%, down from 3.3% in November. Energy prices surged 2.6% monthly, with gasoline (+4.4% MoM) driving 40% of the overall CPI increase. Meanwhile, shelter inflation (33% of CPI weight) rose 0.3% monthly and 4.6% annually – the smallest annual increase since January 2022. This mixed picture underscores the Fed’s challenge: while core inflation is trending downward, energy volatility and sticky services costs require cautious policy calibration.

Expectations for a March rate cut are around 17% while a May rate cut is also unlikely at 36%. 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.

BTC's correlation materially dropped in January as the prices rose four times faster than the broader stock market and for seemingly unrelated reasons. Trump's election and policy announcements also created divergent impacts on crypto versus tech stocks. However, 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 January has not been the strongest month for BTC, with an average of +3.8% and a median of +0.62% returns. January 2025 nearly tripled the average with a +9.3% return. February is usually the third-best month for BTC, especially as investors have finished reallocation and begun to deploy their strategies in the new year.