Crypto Plunges Amid Higher Inflation and Fed Rate Fears
Key Summary
Bitcoin and Ethereum fell by 4% and 6.5% respectively as inflation concerns and Fed rate hike expectations put pressure on risk assets, sparking fears of delayed rate cuts and a potential shift in the market's perception of Bitcoin's role as a hedge.
Market Update
Bitcoin and Ethereum fell by 4% and 6.5% respectively over 24 hours as hotter US inflation and a technology sell-off put pressure on risk assets. The comparison sharpens a familiar market question: when rates and funding costs move back into focus, does Bitcoin trade more like a high-beta asset than a hedge?
CPI and Rate Expectations
September’s Consumer Price Index rose 0.6% from the previous month and 3.7% year over year. Core CPI, which excludes food and energy, increased 0.3% monthly and 2.6% annually, while gasoline prices jumped 9.1% and accounted for more than half of the headline monthly gain.
Market Reaction
The comparison put a possible Federal Reserve hike back on traders’ radar ahead of the October 27–28 meeting. CME FedWatch briefly showed a 31.6% implied chance of a hike on October 28, up from 22.1% a day earlier, before later pricing put the probability of the Fed staying on hold at 75%.
AI and Crypto Correlation
Saxo Bank strategist Charu Chanana characterized the equity reaction as a repricing of capital costs, with investors reconsidering what they would pay for AI growth when borrowing costs are high and volatile. JPMorgan analysts identified financing risks and IPO timelines as central concerns for the AI trade. That helps explain why AI-linked equities came under pressure. The more defensible reading is that the CPI shock put rates at the center of a broad risk-off move in which crypto weakened too.
Bond Market Response
BlackRock cut its equity overweight, trimmed its AI-heavy chip exposure, and dumped long-duration bonds. The world’s biggest asset manager is getting defensive while the AI trade still looks strong. The 10-year Treasury yield fell 7.8 basis points to 5.110% as investors bought government bonds during the equity rout, a move Reuters’ account tied to demand for havens and falling growth expectations.
Outlook
If further data or central-bank communication lifts the perceived chance of an October hike, pressure on AI-linked shares and higher-beta crypto could persist. If the no-hike probability stays near the reported 75%, attention may turn to whether the technology sell-off stabilizes and whether Bitcoin can recover from around $80,764.