CoinShares said in a market report on Oct. 17 that stronger-than-expected U.S. inflation and consumer data pushed expectations for Federal Reserve policy in a more hawkish direction, weighing on Bitcoin and the broader digital asset market.
The report said global digital asset investment products recorded net outflows of $434 million this week, a sign that investor sentiment worsened after the latest U.S. CPI data.
Inflation and retail sales both came in strong
U.S. September CPI rose 0.6% month over month and 3.7% year over year, above the market expectation of 3.6%. Core CPI increased 2.6% year over year.
Retail sales rose 0.8% from the previous month, far above the roughly 0.3% market expectation. Retail sales excluding gasoline, however, increased only 0.2%, indicating that part of the consumption gain was driven by higher energy prices.
Rate expectations shifted after the data
CoinShares said inflation remains elevated and economic demand has stayed resilient, making it difficult for the Federal Reserve to relax its restrictive policy stance.
Polymarket data showed that as of Oct. 15, the market was pricing in about a 75% probability that the Fed would leave rates unchanged in October and a 25% probability of a 25-basis-point hike. At the same time, expectations for another rate increase before the end of the year had risen.
CoinShares' view on Bitcoin
CoinShares said Bitcoin still faces pressure in the near term from swings in rate expectations, though that does not necessarily mean its fundamentals will weaken.
According to the report, the next move will depend on whether inflation cools and whether economic activity shows enough weakness to ease pressure for further rate hikes.