BTC Surges Closer to $80K Following US Inflation Report as Bond Yields Hit 22-Year Peak
The latest US Consumer Price Index report provides a boost to cryptocurrency and risk-on assets as 30-year Treasury yields momentarily surge to levels not seen since June 2004.
Bitcoin (BTC) climbed back to the $79,000 level on Friday following the release of crucial US inflation metrics that largely matched market forecasts.
Key points:
- The month-over-month US core CPI inflation figure rose 0.3%, exceeding the anticipated 0.2% increase.
- Market-implied probabilities for a Federal Reserve interest-rate increase at the Sep. 16 policy meeting climbed to 85%.
- QCP analysis cautions that elevated US Treasury yields will pressure Bitcoin during the Fed's monetary tightening cycle.
BTC Posts 3% Rally as Market Nervously Processes Inflation Data
According to TradingView data, BTC price action became volatile once again following the August Consumer Price Index (CPI) figures, which registered at 3.4% on an annual basis.
Following an initial decline to the $76,000 mark, BTC/USD swiftly recovered, posting more than 3% in intraday gains.
The upward movement mirrored US stock markets, which similarly reversed into positive territory after opening the session in the red. Markets reacted favorably to CPI data meeting expectations just one day following the Producer Price Index (PPI) exceeding forecasts. At the time of writing, the S&P 500 had climbed 1%, while the technology-focused Nasdaq Composite Index advanced 1.1%.
Treasury yields in the United States experienced sudden volatility as well. Following the CPI release, the 30-year Treasury yield swung wildly, initially climbing to its highest point since June 2004 before retreating to 5.309%.
"This is a nervous market," trading resource The Kobeissi Letter summarized in a response on X.
With WTI crude oil prices hovering around $100 per barrel, the effects of the escalating US-Iran conflict and resulting oil-supply constraints were evident in the latest CPI data.
"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 BLS report also indicated that core CPI climbed by 0.3% in August, representing a 0.1% increase above market expectations.
Following the data release, market participants increased their wagers that the Federal Reserve would implement a 0.25% interest-rate hike during its Sept. 16 policy meeting. According to the most recent data from CME Group's FedWatch Tool, the probability of such a move increased to 85% on Friday, up from 60% one week earlier.
Federal Reserve policymakers are understood to have diverging views on the appropriate direction for monetary policy, with governor Christopher Waller indicating last week that he would favor maintaining rates within their current 3.50-3.75% range if inflation data demonstrated 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.
Expert Assessment: Rising Yields to Create Headwinds for Bitcoin
Examining the future implications of elevated Treasury yields, trading firm QCP Capital cautioned that Bitcoin bulls should temper their expectations. This warning comes despite BTC/USD posting a 25% surge in August following the US Treasury's announcement of increased debt buyback interventions.
"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."
According to QCP's assessment, Bitcoin would eventually benefit from these market dynamics, but only after buyback operations have had adequate time to inject sufficient liquidity into financial markets.