Surging dollar forces Bitcoin sell-off as rate hike odds double

Bitcoin faces a tougher interest-rate outlook after US inflation data released Oct. 14 pushed bets on another Federal Reserve hike sharply higher. Rising Treasury yields could weigh on Bitcoin by making interest-bearing dollar assets more attractive.

Market-data provider LSEG data shows money markets priced in roughly a 47% chance of another October rate increase after the release, up from closer to 20% beforehand.

September consumer prices were 3.7% higher than a year earlier, up from 3.4% in August, according to the Bureau of Labor Statistics release. Annual core inflation, which excludes food and energy, increased to 2.6% from 2.4%. Both readings exceeded forecasts of 3.6% and 2.5%, respectively.

On a seasonally adjusted monthly basis, headline CPI rose 0.6% after 0.4% in August. Gasoline prices rose 9.1% and accounted for more than half the monthly headline increase, while shelter costs increased 0.4%. Monthly core CPI rose 0.3%, matching August but exceeding the 0.2% forecasts.

After the results, Bitcoin hit an intraday low of $81,588.88 on Oct. 14.

Another increase would extend September's tightening

The Fed had already raised its target range by a quarter percentage point to 3.75%-4.00% on Sept. 16. Another hike would extend that tightening, with the next policy meeting scheduled for Oct. 27-28.

Post-CPI reports put the two-year Treasury yield at 4.872%, up seven basis points on the day, with the dollar showing gains against a basket of currencies. The shift in those markets shows the inflation surprise is changing expectations for borrowing costs ahead of policymakers' next decision.

For Bitcoin holders, the consequence depends partly on whether those higher yields persist. Continued competition from interest-bearing dollar assets could create a headwind for a cryptocurrency that does not pay interest, even if the Fed leaves rates unchanged in October.

The release also followed a period of cheaper short-term volatility pricing. Oct. 12 showed concentrated put options on Deribit at $76,000-$80,000 for the Oct. 16 expiry, which buyers can use to protect against falling prices.

The immediate change is greater market concern about further tightening. It remains unclear whether Bitcoin can withstand that pressure if yields stay elevated as the October Fed decision approaches.