Bitcoin’s Inflation Standoff

Recent data from the Bureau of Labor Statistics indicates a slight uptick in inflation. The August year-over-year inflation rate registered at 2.7%, marginally higher than July’s 2.6%. Specifically, core consumer spending, which excludes the often-volatile sectors of food and energy, has increased by 2.9% compared to the same period last year.

Bitcoin experienced a temporary dip to $109,000 within the last day, but has since recovered slightly to around $109,300 in early trading. Data from CoinGecko, a crypto price tracking site, shows that BTC has declined 1.5% in the last 24 hours and is down 5.9% over the past week.

It’s been a challenging period for the leading cryptocurrency. Yesterday saw substantial liquidations in the crypto futures market, with over $1 billion in contracts being forcibly closed in a 24 hour period, as cryptocurrency values broadly tracked lower alongside Bitcoin.

The situation has shown little sign of improvement early this morning. Over the last 24 hours, $970 million in futures contracts were liquidated. A significant $852 million of these were long contracts, indicating bets on positive price movement. According to data from CoinGlass, the largest single liquidated position was a $19.2 million ETH-USDT contract on the HTX exchange, based in Singapore.

This situation has increased bearish sentiment among users on Myriad, a prediction market platform owned by DASTAN, the parent company of Decrypt. Currently, 69% of users are predicting that the Bitcoin price will decline to $105,000 before it can climb to $125,000. Just two days prior, opinions were evenly split between bullish and bearish views.

These sentiments may be partially driven by new tariffs announced by President Donald Trump, scheduled to take effect on October 1. The policy, announced via a Truth Social post late Thursday night, includes a 100% duty on branded drugs, 25% on heavy-duty trucks, 50% tariffs on kitchen cabinets and bathroom vanities, and a 30% tariff on upholstered furniture.

The president has also used Truth Social, a platform where a majority stake is owned by the Donald J. Trump Revocable Trust, to publicly criticize Federal Reserve Chair Jerome Powell.

“If it weren’t for Jerome ‘Too Late’ Powell, we would be at 2% right now, and in the process of balancing our budget,” the president stated. “The good news is that we’re powering through his incompetence, and we’ll soon be doing, as a country, better than we have ever done before!”

Bitcoin investors closely monitor consumer spending data because it serves as a key indicator of inflation for the Federal Open Markets Committee (FOMC). Unexpected shifts in spending data can alter expectations regarding interest rates and yield curves. Significant shifts in either direction often trigger volatility in equities, fixed income markets, foreign exchange rates, and Bitcoin.

Traders are also analyzing public statements from the Fed chair for indications about the FOMC’s potential direction at its next meeting in October.

The CME FedWatch Tool indicates that traders are assigning an 87.7% probability to the FOMC approving another 25-basis point rate cut next month, slightly down from 91.9% last week. CME data presents a more optimistic outlook than that reflected by Myriad users. Predictions concerning the FOMC’s October policy decisions show 68% of users anticipating a 25-basis point reduction.

In a speech at the Greater Providence Chamber of Commerce in Rhode Island on Tuesday, Powell seemed less concerned about the impact of tariffs than he had earlier this year.

“The overall economic effects of the significant changes in trade, immigration, fiscal and regulatory policy remain to be seen,” he said. “A reasonable base case is that the tariff-related effects on inflation will be relatively short lived—a one-time shift in the price level.”