Bitcoin’s near-term upside faces fresh headwinds after hotter-than-expected core inflation data, but a potential failure of the U.S. Treasury’s bond buyback program could strengthen the longer-term bullish case, according to a new report from European asset manager CoinShares.
Sticky Inflation Raises Odds of Tighter Fed Policy
In a Friday note, CoinShares Head of Research James Butterfill said firmer-than-expected core inflation raises the probability of tighter Federal Reserve policy and could cap Bitcoin below $80,000 in the short term. Data released Friday showed the consumer price index, excluding food and energy, climbed 0.3% in August from the previous month — above consensus estimates.
According to CME’s FedWatch tool, traders see an 85% chance interest rates will be higher after the Federal Reserve meets next week. Bitcoin has historically performed better in low interest rate environments.
Treasury Buyback Failure Could Fuel Debasement Narrative
Butterfill argued the longer-term case for Bitcoin rests on the U.S. Treasury’s bond buyback program failing to bring down long-end yields — a development that could ultimately feed the currency debasement narrative that has supported 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.”
Pressure Building for ‘Bazooka-Style’ Intervention
The U.S. Treasury’s expanded bond buyback program has so far failed to materially suppress long-term yields. If yields remain stubbornly high, Butterfill said pressure will build on Treasury Secretary Scott Bessent to escalate to a much larger, “bazooka-style” buying program aimed at forcing borrowing costs down.
Bitcoin recorded one of its best monthly runs in years this past August after Bessent announced the department would double the size of its long-dated bond buybacks. That announcement and subsequent price surge led some market observers to declare the so-called debasement trade had returned — a strategy where investors buy assets like Bitcoin and gold to hedge against currency devaluation as the dollar weakens.
