Senior investor Roch warned that three factors could cause a 20% drop in the price of Bitcoin.
Senior investors and strategist at Quantum Strategy David Roche expects a bear market with a 20% decline by 2025 due to smaller-than-expected rate cuts, a US economic slowdown and AI bubbles.
Roche said on Monday: "I think a bear market is likely, but probably in 2025. We now know the cause of the bear market."
Roche expects the Fed will not cut rates to the 3.50% market expectation. The Fed’s median forecast for 2025 is 4.1%, while almost all market participants now expect rates to be below 4.1% by September 2025.
“Secondly, earnings will not be as expected because the economy will slow down,” Roche warned.
Roche expects the AI industry to be the third factor that will cause a bear market.
Roche said the AI industry has “entered bubble territory” and will exit the bubble in about six months, and will also be a driver of the economic slowdown.
He said: “I think those three factors are enough to cause a 20% decline in 2025, perhaps starting from the end of this year.” He added that this forecast does not consider who will win the US presidential election in November.
The Fed kept interest rates unchanged at its last meeting, which was questioned last week after a weaker-than-expected jobs report raised concerns about a recession and triggered a big sell-off in the market, exacerbated by yen carry trades unwinding after Japan’s hike.
However, markets rebounded quickly, with the S&P 500 closing down less than 0.1% last week.
Now Roche expects the Fed to continue cutting rates by 25 basis points, but that will also lead to a slowdown, which will happen gradually by 2025.
He said: “If you want the Fed to cut rates, then the economy and the labour market must slow down and the yield curve will face pressure.”
Roche said if these factors trigger a bear market, the Fed would have room to respond because the pain thresholds for the Fed officials, consumers and politicians are very low.
He said: “If it is worse than expected, the Fed will probably have enough room to cut rates, the Fed has said this many times.”
Roche added that it is uncertain whether the bear market can be decisively reversed, but it will prevent the Fed from being a factor that destroys and destroys the global economy.