Bitcoin’s upcoming significant shift relies on a $63 billion “fallen angel” indicator that many investors are overlooking.

The quality of corporate credit is declining beneath a seemingly placid surface. JPMorgan recorded approximately $55 billion in US corporate bonds that fell from investment-grade to junk status in 2025, known as the “fallen angels.”

Concurrently, only $10 billion regained investment-grade status as “rising stars.” An additional $63 billion of investment-grade debt now teeters on the brink of junk status, an increase from around $37 billion at the close of 2024.

Despite this, spreads remain exceptionally narrow: as of Jan. 15, FRED data indicates investment-grade option-adjusted spreads at 0.76%, BBB spreads at 0.97%, and high-yield spreads at 2.71%.

Such levels indicate that investors are not yet perceiving this as a credit event, even as the volume of potential downgrades increases.

This disparity between underlying deterioration and surface complacency creates the perfect environment for Bitcoin to evolve into a convex macro trade. Mild spread widening generally poses a challenge for risk assets, including Bitcoin.

However, should credit stress intensify sufficiently to prompt early Federal Reserve rate cuts or liquidity support, the same dynamic that initially pressures Bitcoin can shift into a monetary regime where it historically gains traction.

Corporate bond downgrades surged to $55 billion in 2025 from $4 billion in 2024, while upgrades fell from $22 billion to $10 billion.

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Credit stress as a two-stage mechanism

Bitcoin's connection with corporate credit is contingent on the state of the market.

Research published in Wiley in August 2025 indicates a negative correlation between cryptocurrency returns and credit spreads, with the relationship becoming significantly more evident in stressed market conditions.

This framework elucidates why Bitcoin frequently experiences sell-offs when spreads widen, followed by rallies if the widening becomes pronounced enough to alter the policy perspective. The initial phase tightens financial conditions and diminishes risk appetite.

The subsequent phase increases the likelihood of looser monetary policy, lower real yields, and a depreciated dollar. These factors are more crucial for Bitcoin than crypto-specific developments.

Bitcoin is acutely responsive to narratives surrounding monetary liquidity, not merely those pertaining to the crypto market. This sensitivity underscores the significance of the “fallen angel” pipeline.

When corporate bonds lose their investment-grade classification, they prompt forced selling by regulated or mandate-constrained holders, such as insurers, investment-grade-only funds, and index trackers. Moreover, dealers require wider spreads to manage the associated risk.

Research from the European Central Bank regarding financial stability highlights that fallen angels can negatively impact both prices and issuance conditions for the affected companies, which can spill over into equities and volatility.

Bitcoin generally experiences this spillover through the same mechanisms that affect high-beta equities: tighter conditions, decreased leverage, and risk-off positioning.

However, this mechanism has a second act. If credit deterioration becomes relevant on a macro scale, with spreads widening swiftly enough to threaten corporate refinancing or trigger broader financial distress, the Fed’s toolkit allows for intervention.

On Mar. 23, 2020, the Fed established the Primary Market Corporate Credit Facility and the Secondary Market Corporate Credit Facility to support corporate bond markets.

Research from the Bank for International Settlements on the SMCCF indicates that the announcements significantly reduced credit spreads, primarily by compressing credit risk premiums.

For Bitcoin, backstops and balance-sheet-style measures signify the type of liquidity regime shift that crypto traders tend to anticipate, often ahead of traditional assets fully adjusting to the policy change.

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The non-credit asset angle

Credit deterioration serves as a reminder that corporate claims involve default risk, maturity constraints, and downgrade cascades. Bitcoin lacks these attributes. It does not possess issuer cash flow, a credit rating, or a refinancing timeline.

In an environment where investors are reducing credit exposure, particularly when yields decline and the dollar weakens, Bitcoin can gain traction as a non-credit alternative.

This is not an argument for Bitcoin being a “safe haven.” Its volatility profile renders that perspective misleading. It is, rather, a rotation argument: when credit becomes problematic, assets devoid of credit risk can attract capital flows, even if they carry other risks.

Bitcoin-dollar correlations fluctuate over time and are episodic, indicating that the “weaker dollar equals bullish Bitcoin” narrative is not guaranteed.

Nonetheless, in a scenario where credit stress drives both lower US yields and a policy shift, the dollar may weaken alongside declining real rates, and this combination historically presents the most favorable macro landscape for Bitcoin.

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When complacency breaks

Current circumstances lie within an unusual zone. Investment-grade spreads at 0.76% and high-yield spreads at 2.71% are historically compressed, yet the downgrade pipeline is the largest since 2020.

This situation creates three plausible scenarios, each with varying implications for Bitcoin.

In the “slow bleed” scenario, spreads widen gradually but do not gap significantly. High-yield spreads may increase by 50 to 100 basis points, BBB spreads could widen by 20 to 40 basis points, and financial conditions tighten incrementally.

The Fed remains cautious, and Bitcoin behaves like a risk asset, struggling as liquidity conditions tighten without any corresponding policy shift. This is the most typical outcome when credit deteriorates slowly, and it is usually bearish or neutral for Bitcoin.

In the “credit wobble” scenario, spreads adjust to levels that alter the policy discussion without instigating a full-blown crisis.

Reuters reported that high-yield spreads reached approximately 401 basis points and investment-grade spreads around 106 basis points during the April 2025 stress episode. Those levels do not indicate a crisis, but they are sufficient to prompt the Fed to reconsider its strategy.

If Treasuries rally on risk-off flows while the market anticipates rate cuts, Bitcoin can shift from risk-off to liquidity-on more swiftly than equities. This is the “convex” scenario: Bitcoin may initially drop, then rally ahead of the policy adjustment.

In the “credit shock” scenario, spreads widen to crisis-like levels, forced selling accelerates, and the Fed employs balance-sheet tools or other liquidity support measures.

Bitcoin undergoes extreme volatility in both directions: an initial market selloff followed by a sharp rally as liquidity expectations shift.

The 2020 situation serves as the clearest example. Bitcoin plummeted from approximately $10,000 to $4,000 in mid-March, then surged above $60,000 within a year as the Fed’s response flooded the system with liquidity.

The bullish case for Bitcoin amid credit stress is not that it is immune to the initial shock, but that it can disproportionately benefit from the policy response.

Regime	Credit move (your ranges)	What happens in credit	Policy signal to watch	Bitcoin pattern (Phase 1 → Phase 2)
Slow bleed	HY +50–100 bps; BBB +20–40 bps	Incremental tightening; refinancing anxiety rises slowly	No clear pivot; financial conditions grind tighter	Risk-off drag → little/no “liquidity flip”
Credit wobble	Reprice toward “policy-relevant” levels (e.g., HY ~401 bps; IG ~106 bps episode)	Conditions tighten fast enough to change the Fed conversation	Cuts pulled forward; real yields start falling	Drop with risk → rebounds earlier than equities on pivot pricing
Credit shock	Gap wider to crisis-like levels	Forced selling, liquidity stress, market dysfunction risk	Facilities/backstops; balance-sheet-type actions	Sharp selloff → violent rally as liquidity regime turns

What to watch

The framework for monitoring whether credit stress transitions from a headwind to a tailwind is straightforward. High-yield and BBB spreads are the initial indicators: if BBB widens disproportionately, the fallen-angel pipeline is being priced in.

CDX IG and CDX HY indices offer a clearer insight into market sentiment. US Treasury real yields and the dollar together form the crucial cross-check: rising real yields and a strengthening dollar represent the most detrimental combination for Bitcoin, whereas falling real yields signal a potential policy shift.

Liquidity mechanisms, such as any indications of Fed facilities, balance-sheet expansion, or repo operations, are significant because stablecoins and on-chain crypto liquidity respond to monetary shocks.

The credit market is displaying both resilience and cautionary signals. January commenced with substantial investment-grade issuance and still-low risk premiums, implying that investors are not yet treating this as a 2020-style scenario.

However, the $63 billion near-junk pipeline is a loaded gun.

If spreads remain contained, Bitcoin’s narrative regarding credit stress remains theoretical. If the spreads widen, the sequence becomes crucial: tighten the shock first, ease expectations later.

Bitcoin’s optimistic outlook in a scenario of credit deterioration is not that it escapes the initial phase, but that it can exploit the second phase more rapidly than assets still linked to corporate cash flows and credit ratings.

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