Corporate credit quality is deteriorating beneath the seemingly benign surface. JPMorgan tallied about $55 billion in U.S. corporate bonds, the so-called “fallen angels,” that fell from investment grade to junk status in 2025.
At the same time, only $10 billion returned to investment grade status as a “rising star.” Another $63 billion in investment-grade debt is now near junk status, up from about $37 billion at the end of 2024.
However, spreads are still noticeably narrow. As of Jan. 15, the investment-grade option-adjusted spread was 0.76%, the BBB spread was 0.97%, and the high-yield spread was 2.71%, according to FRED data.
These levels suggest that investors are not yet treating this as a credit event, even though the pipeline of potential downgrades is swelling.
This disconnect between internal deterioration and superficial complacency creates exactly the kind of context in which Bitcoin can become a convex macro trade. Moderate spread widening is typically a headwind for risk assets, including Bitcoin.
However, if credit stress accelerates enough to bring forward Fed interest rate cuts or a liquidity backstop, the same dynamics that hit Bitcoin in the first place could reverse into the financial system that has historically won the bid.
Credit stress as a two-step mechanism
The relationship between Bitcoin and business credit depends on the state.
An academic study published in Wiley in August 2025 found that there is a negative relationship between crypto returns and credit spreads, and that the relationship becomes more pronounced in more stressful market conditions.
This structure explains why Bitcoin often sells off when spreads widen, but rebounds when spreads become severe enough to change policy outlooks. In the first stage, financial conditions tighten and risk appetite decreases.
The second stage increases the likelihood of monetary easing, lower real yields, and a weaker dollar. These are variables that Bitcoin cares about more than cryptocurrency-specific news.
Bitcoin is highly sensitive not only to the internal cryptocurrency market narrative, but also to the liquidity narrative of the currency. That sensitivity is why the “Fallen Angel” pipeline is so important.
When a corporate bond loses its investment-grade status, it triggers a forced sale by regulated or mandated holders, such as insurance companies, investment-grade-only funds, and index trackers. Additionally, dealers are demanding wider spreads to avoid risk.
The European Central Bank’s financial stability work notes that fallen angels could have a negative impact on both the prices and terms of issuance of affected companies, which could spill over into stock prices and volatility.
Bitcoin is feeling its ripple effects through the same channels that typically put pressure on high-beta stocks: tighter conditions, lower leverage, and risk-off positioning.
But this mechanism has a second act. The Fed’s toolkit includes precedent for intervention if credit deterioration becomes macro-related and spread gaps widen rapidly, threatening corporate refinancing or creating broader financial stress.
On March 23, 2020, the Federal Reserve established the Primary Market Corporate Credit Facility and the Secondary Market Corporate Credit Facility to support the corporate bond market.
A Bank for International Settlements study of the SMCCF found that the announcement primarily compressed credit risk premiums and significantly lowered credit spreads.
In the case of Bitcoin, backstops and balance sheet-type actions represent the kind of liquidity regime changes that crypto traders tend to take ahead of, often before traditional assets have fully repriced the policy change.
Non-credit asset angle
Credit deterioration is a reminder that corporate debt comes with default risk, maturity walls, and a chain of downgrades. Bitcoin does not have those functions. There is no issuer cash flow, credit rating, or refinancing calendar.
In a world where investors are hedging the risk of credit exposure, Bitcoin can profit on margin as a non-credit alternative, especially when yields are falling and the dollar is weakening.
This is not a “safe haven” argument. Bitcoin’s volatility profile makes the framework misleading. This is a rotation argument. When credit becomes an issue, assets without credit risk can attract flows even if they carry other risks.
The correlation between Bitcoin and the dollar changes over time and is temporary, so a channel of “weak dollar = bullish bitcoin” will not automatically occur.
However, in a scenario where credit stress triggers both a decline in US yields and a policy shift, the dollar could weaken along with lower real interest rates, a combination that has historically been the most supportive macro mix for Bitcoin.
When complacency breaks down
The current situation is in abnormal territory. Investment-grade spreads are 0.76% and high-yield spreads are 2.71%, narrower by historical norms, but the downgrade pipeline is the largest since 2020.
This creates three plausible paths, each with a different impact on Bitcoin.
In a “slow bleed” scenario, the spread widens but there is no gap. Financial conditions could tighten gradually, with high-yield spreads rising by 50 to 100 basis points and BBB spreads widening by 20 to 40 basis points.
The Fed remains cautious, and Bitcoin is behaving like a risky asset, struggling with tightening liquidity conditions without offsetting policy changes. This is the most common outcome when trust deteriorates over time and is usually bearish or neutral for Bitcoin.
In a “credit anxiety” scenario, reprices are spread to a level that changes policy talks without triggering a full-blown crisis.
Reuters reported that during the April 2025 stress episode, high-yield bond spreads reached about 401 basis points and investment-grade spreads reached about 106 basis points. These levels are not crisis territory, but they are high enough to cause the Fed to reconsider its path.
If the market brings forward interest rate cuts and US Treasuries rise in a risk-off fashion, Bitcoin could turn from risk-off to liquidity-on faster than stocks. This is a “convex” scenario. Bitcoin initially drops sharply, then rebounds ahead of the policy change.
In a “credit shock” scenario, the gap widens to crisis levels, forced selling accelerates, and the Fed deploys balance sheet tools and other liquidity backstops.
Bitcoin experiences extreme volatility in both directions. It falls across the market and then rises sharply as liquidity expectations change.
The 2020 template is the clearest example. Bitcoin fell from about $10,000 to $4,000 in mid-March, but rose above $60,000 within a year as the Fed’s response flooded the system with liquidity.
The bullish argument for Bitcoin in credit stress is not that Bitcoin is immune to the initial shock, but that it may benefit disproportionately from policy responses.
| administration | Credit transfer (your range) | what happens in the credits | Policy signals to watch | Bitcoin pattern (phase 1 → phase 2) |
|---|---|---|---|---|
| slow bleed | HY +50–100 bps. BB +20–40 bps | Tighten in stages. Anxiety about refinancing gradually increases | There is no clear axis. Financial situation becomes even more difficult | Risk-off drug → little or no “liquidity reversal” |
| fluctuations in trust | Repricing to “policy relevant” levels (e.g. HY ~401 bps, IG ~106 bps episodes) | Conditions get tougher enough to change the Fed’s argument | The cut was pulled forward. real yields begin to decline | Fall with risk → rebound faster than stocks due to pivot pricing |
| credit shock | Inequality widening to crisis-like levels | Forced sales, liquidity stress, and market dysfunction risks | Facilities/Backstop; Balance Sheet Type Actions | Rapid decline due to change in liquidity system → intense rebound |
what to see
A simple dashboard to track whether credit stress has turned from a headwind to a tailwind. High-yield spreads and BBB spreads are at the forefront. If BBB expands disproportionately, the price of the Fallen Angel pipeline will rise.
The CDX IG Index and CDX HY Index provide a more accurate reading of market sentiment. The real yield on the US Treasury and the dollar together form an important cross-check. Rising real yields and a rising dollar are the most toxic combination for Bitcoin, and falling real yields signal a possible policy shift.
Liquidity in stablecoins and on-chain cryptocurrencies reacts to financial shocks, so liquidity plumbing such as Fed facilities, balance sheet expansion, and signs of repo operations are important.
Credit markets are showing both strength and warning lights. January started with large investment-grade issuances and still-low risk premiums, suggesting investors are not yet viewing this as a 2020-style event.
But the $63 billion near-junk pipeline is a loaded gun.
If spreads remain subdued, the Bitcoin credit stress narrative remains hypothetical. If there is a spread gap, order matters. Tighten the shock first and ease expectations later.
The bullish argument for Bitcoin in a credit deterioration scenario is not that it can avoid the first stage, but that it can take advantage of the second stage faster than assets that are still tied to corporate cash flows and credit ratings.
(Tag Translation)Bitcoin
