Bitcoin’s 2025 has been characterized by extreme volatility, experiencing a series of record highs followed by a sharp downturn, putting the world’s largest cryptocurrency at risk for its first yearly decline since 2022.

As reported by Reuters, the world’s prime stock benchmarks also had a disruptive year, repeatedly hitting record peaks and then falling sharply due to concerns over tariffs, interest rates and a possible AI bubble.

It has been observed that equities are mostly up year-to-date, bitcoin’s positive correlation with share prices has strengthened markedly this year.

According to analysts, bitcoin's revolution tracked stock market sentiment as conventional retail and institutional investors jumped into cryptocurrencies, which next year may be even more closely bound to factors driving stocks and other risk assets, such as monetary policy shifts and nervousness over the exalted AI-related stocks.

Bitcoin has struggled to recover equilibrium ever since and in November experienced its sharpest monthly drop since mid-2021, although options market nervousness has fallen back a little in recent weeks, according to options platform Derive.xyz.

The increasing correlation between bitcoin and equities

The sharp market moves in April and October underscore the growing correlation between bitcoin and equities, particularly artificial intelligence stocks-which share the same imputes and have been hit by worries that estimations are in bubble territory.

Bitcoin and stocks did not move concurrently because crypto was seen as an alternative investment.

On the contrary, due to broader crypto adoption by traditional retail investors and some institutions, the correlation between bitcoin and stocks seems to be reinforcing, in line with the analysts’ predictions.

In this connection, Cosmo Jiang, a general partner at Pantera Capital, a crypto investor said, “Things really started to break in risk markets in the recent weeks, because of the AI bull case coming under question.”

Questions arising over the rate cut

Cryptocurrencies also appear acutely sensitive to the path of interest rates, just like stocks.

According to the fidelity research from the last year, it was found that there is less historical data to scrutinize the price of bitcoin increases when the Federal Reserve cuts rates; some analysts have observed that crypto tends to conform with dovish signals from the central bank.

Moreover, the economic data further suggest that the market is pricing an 86% chance of a 25-basis-point cut this week.

The rate decision, along with the strong investment of AI stocks, will likely be a principal factor for crypto prices in the near term.

In addition, Mo Sheikh, co-founder and general partner at Maximum Frequency Ventures said, “the Fed’s support of monetary supply in this particular scenario is going to be an indicator that crypto is all looking at.”