Bitcoin: the data turned mixed, not weak

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.