Bitcoin consolidated this week as the market sharply reduced its expectations for another near-term rate hike. The catalyst was New York Fed President John Williams, who argued that September’s 25bp hike had reduced the urgency for further tightening and that the Fed now has time to assess incoming data. The implied probability of an October hike fell from roughly 75% to around 50%, and subsequent data pushed it lower still, to roughly 37%.
August JOLTS openings fell to 7.079M, below expectations and the lowest in five months. September consumer confidence dropped to 81.9 from 88.6, its weakest reading since 2014. Core PCE came in below expectations at 0.2% month-on-month and 3.0% year-on-year, reinforcing the case for patience.
The other side of the ledger is more resilient. Second-quarter GDP was revised to 2.2% annualised, consumer spending rose 0.9% in August and initial jobless claims have fallen to their lowest since July. The Fed is weighing softer forward-looking employment and sentiment indicators against relatively resilient underlying activity.
Two parts of the curve, two different stories
For bitcoin, lower expected policy rates reduce the relative attractiveness of cash and short-duration Treasuries, which typically improves the backdrop for liquidity-sensitive assets. The unusual feature of this week is that long-dated yields moved the other way. The 10-year Treasury briefly reached around 5.3%, its highest level since 2002.
That divergence matters for portfolio construction. Investors are increasingly distinguishing between Fed policy at the front end of the curve and concerns around fiscal sustainability, heavy Treasury issuance and term premium at the long end. Bitcoin sits at the intersection: a softer expected Fed path supports it through the conventional liquidity channel, while a rising long end reflects concern about US fiscal sustainability rather than tighter monetary policy alone.
Flows show investors turning selective
Positioning has not followed the macro improvement. Inflows into digital asset investment products total only around US150M so far this week, down from approximately US3.5B last week. That reads as a slowdown in conviction rather than a reversal in sentiment, and it suggests investors are becoming more selective after such a strong period of inflows.
The macro backdrop for bitcoin has improved, but it remains finely balanced. Softer employment, confidence and inflation data have reduced the need for another immediate hike, while very high long-term Treasury yields represent a separate, fiscal concern. Both developments are supportive for bitcoin, but they work through very different channels.
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