Bitcoin’s trajectory upward has encountered increased challenges in the near term; however, the longer-term outlook may be showing signs of improvement, as indicated by a recent report. In a Friday note, James Butterfill, indicated that firmer-than-expected core inflation increases the likelihood of tighter Fed policy, which may limit bitcoin’s price to below $80,000 for the time being. However, the argument for the longer term, he contended, hinges on the inability of the U.S. Treasury’s bond buyback program to reduce long-end yields – a shortcoming that could eventually reinforce the debasement narrative underpinning both bitcoin and gold.
“The result is therefore a somewhat unusual policy mix for Bitcoin,” the report read. “Today’s CPI data is negative at the margin, increasing the probability of tighter monetary policy and potentially limiting the immediate upside. “But the apparent failure of the Treasury’s current buying programme increases the likelihood of much more substantial intervention further ahead.” It continued: “If that happens, it could become one of the more powerful medium-term catalysts for Bitcoin.” Data released on Friday indicated that the consumer price index, excluding food and energy, increased by 0.3% in August compared to the previous month – surpassing expectations.
According to CME’s FedWatch tool, traders assign an 85% probability to the likelihood of elevated interest rates following the Federal Reserve’s meeting next week. Bitcoin has generally exhibited strong performance in an environment characterised by low interest rates. However, the U.S. Treasury’s expanded bond buyback program has yet to significantly lower long-term yields. If yields remain persistently elevated, Butterfill indicated, there will be increasing pressure on Treasury Secretary Scott Bessent to implement a significantly larger, “bazooka-style” purchasing initiative designed to reduce borrowing costs.
In August, Bitcoin experienced one of its most significant rallies in recent years following the announcement by Treasury Secretary Scott Bessent regarding the department’s decision to double the scale of its long-dated bond buybacks. The announcement and subsequent price surge has prompted some to assert that the widely discussed debasement trade has returned. The debasement trade refers to the practice where investors acquire an asset as a strategy to protect themselves against the depreciation of a currency. Bitcoin and gold have both gained from the trade dynamics resulting from the weakening of the dollar.
