Bitcoin's Conflicting Signals: Inflation Weighs, Buyback Failure Bolsters

According to a fresh analysis, Bitcoin's near-term upward trajectory has become more challenging, though the longer-term outlook could be brightening.

European asset manager CoinShares' Head of Research, James Butterfill, wrote in a Friday note that stronger-than-anticipated core inflation increases the likelihood of a more restrictive Federal Reserve, potentially keeping bitcoin under $80,000 in the near term.

Butterfill argued that the more distant outlook depends on whether the U.S. Treasury's bond buyback program fails to reduce long-term yields. Such a failure could bolster the debasement story that has propped up 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.”

Friday's data showed the core consumer price index rose 0.3% month-over-month in August, exceeding forecasts.

According to the CME FedWatch tool, there is an 85% probability that interest rates will be higher following the Federal Reserve's meeting next week. Bitcoin usually performs well when interest rates are low.

The U.S. Treasury's enlarged bond buyback program has not yet significantly lowered long-term yields.

If yields remain persistently elevated, Butterfill noted, Treasury Secretary Scott Bessent will face mounting pressure to adopt a much larger "bazooka-style" purchase program intended to push borrowing costs lower.

In August, bitcoin experienced one of its strongest rallies in years after Secretary Bessent announced that the Treasury would double its long-dated bond buyback operations.

The announcement and the resulting price jump have prompted some observers to declare the revival of the much-discussed debasement trade. That trade involves investors purchasing assets as a hedge against currency depreciation.

Both bitcoin and gold have gained from this trade as the U.S. dollar declines.