US CPI Data Sparks Risk-Asset Upside as Bitcoin Eyes $80,000 Mark

Bitcoin (BTC) returned to $79,000 on Friday after key US inflation data broadly conformed to expectations.

Key points:

US core CPI inflation data gained 0.3% month-on-month, surpassing expectations of 0.2%.Implied probabilities of an interest-rate hike by the Federal Reserve at the Sep. 16 meeting rose to 85%.US bond yields will cause Bitcoin pain amid Fed policy tightening, QCP analysis warns.

Bitcoin jumps 3% as “nervous” market digests CPI numbers

Data from TradingView showed renewed BTC price volatility ensuing after the August release of the Consumer Price Index (CPI), which came in at 3.4% year-on-year.

BTC/USD one-hour chart. Source: Cointelegraph/TradingView

After initially dropping to $76,000, BTC/USD quickly reversed upward, gaining more than 3% on the day.

The move echoed US equities, which also turned green after a weak start to the session. This was catalyzed by CPI conforming to expectations only a day after the Producer Price Index (PPI) overshot. The S&P 500 was up 1% at the time of writing, while the tech-heavy Nasdaq Composite Index gained 1.1%.

S&P 500 one-hour chart. Source: Cointelegraph/TradingView

US bond yields also saw snap volatility. On the back of the CPI print, the 30-year yield whipsawed, first reaching its highest levels since June 2004 before falling to 5.309%.

“This is a nervous market,” trading resource The Kobeissi Letter summarized in a response on X.

US 30-year bond yield one-hour chart. Source: Cointelegraph/TradingView

As WTI crude oil continued to circle $100 per barrel, the impact of the expanding US-Iran war and associated oil-supply squeeze was noticeable in the CPI numbers.

“The index for gasoline rose 3.9 percent in August, accounting for over one third of the monthly all items increase. The index for energy increased 2.1 percent over the month,” an official news release from the Bureau of Labor Statistics (BLS) confirmed.

The release also reported that core CPI increased by 0.3% in August, 0.1% more than anticipated.

US CPI 12-month % change. Source: BLS

In response, traders doubled down on bets that the Federal Reserve would raise interest rates by 0.25% at its Sept. 16 meeting. The latest data from CME Group’s FedWatch Tool showed odds of such an outcome rising to 85% on Friday, increasing from 60% a week ago.

Fed target-rate probability comparison for September FOMC meeting (screenshot). Source: CME Group

Fed officials are known to be split on the correct path for policy, with governor Christopher Waller last week indicating that he would be inclined to hold rates in their current 3.50-3.75% range should inflation data show at least “some signs of disinflation.”

“What’s the cost of waiting one meeting? Hiking 25 basis points, one meeting right now, is not going to bring the CPI down to 2%,” he told Reuters.

Analysis: Yield surge to become Bitcoin headwind

Discussing the implications of high bond yields going forward, trading company QCP Capital warned that Bitcoin bulls had little to look forward to. This is despite BTC/USD surging 25% in August after the US Treasury announced that it would step up debt buyback interventions.

Related: Bitcoin buyers wary of July sub-$58K floor amid onchain data ‘anomaly’

“The rise in US yields this year has been driven increasingly by tighter policy expectations and a risk premium common to both stocks and bonds, rather than by growth,” it wrote in its latest analysis. 

“This is the worst mix for Bitcoin: a competing 5% risk-free rate without the nominal-growth impulse that usually accompanies yield moves. It directly undercuts the narrative that carried Bitcoin from $63,000 to $82,000 in the second half of August, which leaned on the idea of a Treasury liquidity put providing structural support.”

QCP argued that Bitcoin would ultimately benefit from these developments, but only once buyback operations have had time to inject sufficient liquidity into markets.