Bitcoin (BTC) recovered to $79,000 on Friday after August US inflation data came in broadly in line with expectations, extending a sharp intraday reversal. The Consumer Price Index rose 3.4% year-on-year, while core CPI increased 0.3% month-on-month, above the 0.2% expected. BTC/USD had initially fallen to $76,000 before gaining more than 3% on the day.
US equities also reversed after a weak start. The S&P 500 was up 1% and the Nasdaq Composite gained 1.1% at the time of writing, following a day earlier when the Producer Price Index came in above expectations. The Kobeissi Letter described the session as a "nervous market."
US bond yields showed sharp volatility. The 30-year Treasury yield briefly reached its highest level since June 2004 before settling at 5.309%. WTI crude oil remained near $100 per barrel, and the Bureau of Labor Statistics said gasoline prices rose 3.9% in August, accounting for more than one third of the monthly all-items increase, while the energy index rose 2.1%. The CPI release reflected pressure from the expanding US-Iran conflict and an oil-supply squeeze.
Traders increased bets that the Federal Reserve would raise rates by 0.25 percentage points at its Sept. 16 meeting. CME Group's FedWatch Tool showed the probability rising to 85% on Friday from 60% a week earlier. Fed officials remain divided on policy, with Governor Christopher Waller saying last week that he would be inclined to hold rates in the current 3.50%-3.75% range if inflation showed at least some signs of disinflation. He told Reuters that a 25-basis-point hike at the next meeting would not bring CPI down to 2%.
QCP Capital warned that the rise in US yields could become a headwind for Bitcoin. The firm said Bitcoin bulls had little to look forward to despite BTC/USD rising 25% in August after the US Treasury announced it would step up debt buyback interventions. QCP said this year's yield increase has been driven more by tighter policy expectations and a risk premium common to stocks and bonds than by growth, calling it the worst combination for Bitcoin: a competing 5% risk-free rate without the nominal-growth impulse that usually accompanies yield moves. The firm argued that dynamic undercuts the narrative that supported Bitcoin's move from $63,000 to $82,000 in the second half of August, which relied on the idea of a Treasury liquidity put providing structural support. QCP added that Bitcoin could ultimately benefit, but only after Treasury buyback operations have injected enough liquidity into markets.
