$BTC Pops The Inflation Cork, Then The Bond Market Sucks It Back Down 🍾

Bitcoin briefly surged above $85,000 on Wednesday after a softer-than-expected U.S. Personal Consumption Expenditures (PCE) report reduced the odds of another Federal Reserve rate increase. The headline PCE price index rose 0.3% from July and 3.4% from a year earlier, versus expectations of 0.3% and 3.7%, respectively, while core PCE, which excludes food and energy, climbed 0.2% on the month and 3.0% annually, against forecasts of 0.3% and 3.3%, according to the Bureau of Economic Analysis. Bitcoin reached a session high of $85,598.94 before retracing, trading at $84,813.74 at the time of the first report, up 0.5% on the day. The U.S. PCE report for August came in cooler than market expectations on both the headline and core measures, prompting traders to scale back bets on a near-term Fed rate increase. The rally that pushed $BTC to $85,598.94 was the same one that began when prices bottomed near $76,000 in mid-September. A daily candle opened at $83,624.30 before the move higher.

The pop proved short-lived as persistently elevated Treasury yields capped risk-asset gains. The 10-year Treasury yield traded around 5.28%, close to its highest level since 2002, while the 30-year yield steadied at 5.62% after hitting its highest since 2002 during New York trading. "Crypto markets took that as a relief signal, and bitcoin jumped back above $85,000 as bond yields slipped and investors became more willing to buy risk assets again," said Dan Khus, chief analyst at LVRG Research, in an email to CoinDesk. By Thursday's Asian session, $BTC had slipped 0.4% to just above $83,700, while HYPE led major tokens higher with a 3% gain to about $89, DOGE added nearly 2% to just under 10 cents, and SOL slipped nearly 1% to just under $119, according to CoinDesk data.

The repricing shifted the Federal Reserve's October conversation. CME's FedWatch tool showed a 62% chance the Fed holds rates and a 37% chance of a 25-basis-point hike as of the inflation print, before later updated odds showed less than a 40% chance of a hike, and a Tuesday reading had pegged October hike odds at 72.5%. Spot Bitcoin ETFs recorded a net outflow of $148.7 million on Wednesday, ending a nine-day inflow streak that had pulled in $3.08 billion, the largest such streak of the year in dollar terms, according to SoSoValue. The Bitfinex Absorption-to-Emission Ratio compressed from 25.6x on September 21 to 1.8x on September 29, with analysts at Bitfinex writing that "absorbing the 1.39M $BTC breakeven supply (which sits between $84,000 and $86,500) requires the BAER to recover toward 5.0x (~$190 million/day)."

By Friday, the move had extended further. Bitcoin traded at $86,757, up 3% over 24 hours, according to CoinGecko data, after September broke the month's losing reputation. The October shift also came as New York Fed President John Williams said on Tuesday there was "no need for urgency" after September's hike, while keeping one more increase in his baseline for later in the year, and as Vice Chair Philip Jefferson said on Thursday that policymakers needed more time. Friday's U.S. nonfarm payrolls report then showed job growth of just 29,000 in September, well below expectations of 89,000, with the unemployment rate rising to 4.2% from 4.1% in August, a three-month high, according to the Bureau of Labor Statistics. Futures put a hold at 74% on CME's FedWatch tool, against 35.8% a week earlier, and traders on Myriad, a prediction market owned by Decrypt's parent company Dastan, priced the same outcome at 75%.