Bitcoin fell below the psychologically important $77,000 level on Thursday as investors sharply increased their expectations of another Federal Reserve interest-rate hike. The world's largest cryptocurrency dropped to an intraday low of roughly $76,748 on September 10.
Fed hike odds surged after hot inflation data. Expectations of tighter monetary policy jumped after the latest U.S. Producer Price Index showed wholesale inflation remaining hotter than economists had hoped. The PPI rose 5.4% year over year in August, slightly above the 5.3% consensus estimate, with a monthly increase of 0.4%. Following the release, traders boosted bets that the Federal Reserve would raise interest rates by at least 25 basis points at its September 16 meeting. The CME FedWatch tool showed the probability of a hike climbing to roughly 70%, up from about 64% beforehand, and other gauges put the odds as high as 74%.
Oil prices and Treasury yields added to the pressure. U.S. crude oil jumped 4% to just over $100 a barrel, feeding into broader inflation concerns. The benchmark 10-year Treasury yield climbed 7 basis points to 4.92%, its highest level since the financial crisis, while the 30-year yield briefly hit 5.35%, the highest since 2007. The policy-sensitive two-year yield rose to roughly 4.53%.
Global monetary tightening reinforced risk-off sentiment. The European Central Bank also raised its key interest rates by 25 basis points on Thursday, citing inflation pressures and the ongoing conflict with Iran. Stock markets declined, with the Dow Jones Industrial Average down about 0.7% and the S&P 500 and Nasdaq Composite falling roughly 0.6% at midday.
Bitcoin ETF outflows signaled weakening institutional demand. U.S. spot Bitcoin exchange-traded funds recorded two consecutive sessions of net withdrawals. According to Onchain Lens, the products suffered $100.7 million in net outflows on September 9, following another $46.6 million in withdrawals on September 8.
All eyes are now on Friday's Consumer Price Index report. Markets expect headline inflation to rise around 0.4% in August, with annual headline CPI at 3.4% and core at 2.4%, according to Dow Jones consensus. A hotter-than-expected print could further cement expectations of a September hike and add more downside pressure on Bitcoin and other risk assets.
