Economist explains why crypto and stock prices may crash in 2025

Cryptocurrency and stock prices have surged this year due to strong earnings and central banks lowering interest rates.

Bitcoin (BTC) reached a record high of nearly $105,000, while the total cryptocurrency market cap increased by 120%. US stock indices such as Nasdaq 100, Dow Jones and S&P 500 also increased by over 20%.

Analysts are optimistic that growth in these assets will continue. For example, Oppenheimer predicted the S&P 500 would rise to 7,100 from its current level of 6,070, citing solid fundamentals

Similarly, Bitwise Chief Investment Officer Matt Hougan predicted that the Bitcoin price could eventually reach $3 million as corporates and governments adopt Bitcoin as a reserve asset.

Mark Zandi explains why crypto and stocks could crash in 2025

Moody’s Chief Economist Mark Zandi warned that both stocks and cryptocurrency are significantly overvalued. He attributes their current stability to the absence of a major bearish catalyst.

I have argued that most asset markets appear overvalued and on the verge of frothing. Stocks, corporate bonds, single family homes, crypto and gold immediately come to mind. So what could be the catalyst that would accelerate their sales? How about a meaningful correction in the Treasury bond market?

— Mark Zandi (@Markzandi) December 8, 2024

In his view, the catalyst will come from the Treasury bond market, which has expanded significantly over the past few years. Public debt in the United States has reached over $36.2 trillion and is increasing by $1 trillion every four months.

Zandi believes the bond market will become quite volatile in 2025 as the Federal Reserve exits quantitative tightening. At the same time, China is no longer buying US bonds, and Japan is starting to reduce its purchases.

Therefore, he expects the hedge funds that bought these bonds to withdraw from the market en masse when signs of trouble appear. At the same time, US deficits are expected to continue to increase during the Trump era.

Therefore, Zandi expects bond yields to rise, leading to a rotation into overvalued assets like stocks and crypto.

Recent history shows that cryptocurrencies and stocks often fall when bond yields rise. A good example of this is the 10-year bond yield rising from 1.33% to 4.3% in 2022 as the Fed raises rates to combat high inflation.

Bitcoin fell 64% that year, while the S&P 500 and Dow Jones fell 19% and 8.8%, respectively. These assets have rebounded this year as bond yields fell as the Fed began lowering interest rates.