Bitcoin Holds Firm Amid US Stock Volatility, but Inflation May Curb Further Gains

Bitcoin (BTC) has remained relatively resilient despite increased volatility in US equities, though still-elevated inflation could limit further gains, CoinShares said.

In a report released on October 23, the digital-asset manager said Bitcoin’s recent rebound was driven by stronger spot buying, improved sentiment in equity markets and some short covering.

Investor enthusiasm for artificial intelligence has cooled somewhat recently, shifting attention to whether major companies can meet lofty expectations through actual earnings. While disappointing results from some US companies have added to stock-market volatility, Bitcoin has remained comparatively stable.

US macroeconomic data has been mixed. Ongoing weakness in the housing market has reduced the immediate need for the Federal Reserve to raise interest rates again. At the same time, recent consumer price index and producer price index readings came in above market expectations, showing inflation pressures remain elevated.

Markets are widely expecting the Federal Open Market Committee to leave its benchmark rate unchanged on October 28. By contrast, an additional rate increase in December is being priced in at about 83%.

CoinShares said financial-market volatility could rise sharply if the Fed unexpectedly raises rates this month. If the central bank holds rates steady while maintaining a hawkish stance, markets would be better able to absorb the shock.

CoinShares said stronger spot demand and Bitcoin’s resilience to stock-market volatility are positive signs. Still, with inflation pressures yet to ease, the Fed has limited room to pivot, leaving Bitcoin sensitive to the interest-rate outlook and overall market liquidity.