Bitcoin Tests $81,000 as Rate Hike Fears Linger After Hot Inflation Data

Consumer prices rose 3.7% in the year to September, Decrypt reported on Wednesday. Prices rose 0.6% over the month, the largest monthly increase in five months, driven mainly by energy costs tied to the war with Iran, The New York Times reported.

Traders’ odds of a Fed rate hike this month jumped to 43% from 24% after the report, the Times said, though federal funds futures still point to December for the next increase. The Fed raised rates to a range of 3.75% to 4% in September.

CME FedWatch put the odds of an October hike at 29.3% on Thursday, up from 17.7% a week earlier, while traders on prediction markets Myriad and Polymarket priced it at 28%. Polymarket traders put the chance of a December hike at 79%. (Disclosure: Myriad is a prediction market operated by Decrypt‘s parent company, Dastan.)

Stephen Wundke, strategy and revenue director at quantitative investment firm Algoz, argued that those probabilities feed directly into Bitcoin’s price. “On the bullish side as long as $BTC stays above $79,500 we can keep the dream alive,” Wundke told Decrypt.

Inflation has now run above the Fed’s 2% target for 66 straight monthly readings, the longest streak this century, according to a CNBC analysis. “They’re starting to accept high inflation as just a fact of life,” Cleveland Fed President Beth Hammack wrote in a LinkedIn post last week.

Those pressures are only part of the picture, Tim Sun of HashKey Group told Decrypt. Rising rate hike expectations, a stronger dollar and a pullback in AI tech stocks have weighed on Bitcoin on the surface, he said, “however, the deeper reason lies in the changing structure of incremental capital.”

“Over the last two years, the key marginal buyers of Bitcoin primarily came from spot ETFs and corporate Bitcoin treasuries,” Sun said. As borrowing costs rise, narrowing valuation premiums at some corporate treasuries have made it less attractive to raise money to keep buying Bitcoin, he added.

“Nevertheless, Bitcoin has not experienced a sustained deep sell-off as a result,” Sun said, pointing to growing involvement from major traditional banks that has added long-term capital to the market.

Bitcoin’s trading range

Sun expects Bitcoin to stay range-bound in the short term. A breakout depends on whether ETF flows return to sustained net inflows and whether corporate treasuries can improve their ability to raise money and buy, he said.

Wundke also expects a range. “Without a clear catalyst to move things higher I fear we are range bound with $BTC between $76,000 and $83,000 for the rest of October,” he said, adding that peace with Iran “would change that dynamic instantly.”

“In the short term Bitcoin trades as a liquidity asset, and higher for longer means tighter liquidity, so this drop is the market repricing rates, not a change in Bitcoin’s story,” Abdul Rafay Gadit, co-founder of ZIG Finance, told Decrypt.

“The next few weeks are about the Fed, not crypto,” Gadit said. “If it signals it can look through sticky inflation, risk appetite returns quickly; if not, expect choppy trading.”

The Fed will announce its next rate decision on October 28.