Bitcoin faces a busy week of inflation data, central-bank decisions and a large derivatives expiry. The Federal Reserve is widely expected to hold rates steady on Wednesday, but markets still see a strong chance of a December hike. Thursday’s US personal consumption expenditures (PCE) price index could shift those expectations, while about $10.97 billion in bitcoin options are due to expire on Deribit on Friday.
Bitcoin stood at $80,472 on October 25, below the more than $86,000 it briefly topped earlier in October. The convergence of rate expectations and derivatives positioning makes this week a key test of investor appetite for risk.
Fed expected to hold, with December hike bets intact
CME FedWatch puts the odds of the Fed holding rates at its October 28 meeting at 90.6%, against 9.4% for a hike. A month ago, markets assigned a 64.2% chance to a rate increase this week. The Fed raised its benchmark rate to 3.75%-4.00% in September, its first increase since 2023.
Expectations for a pause this week have not ended bets on further tightening. FedWatch shows a 68% probability of a December hike, while all 100 economists in one survey expected an increase at that meeting. The Fed’s next meeting is scheduled for December 8-9.
Yardeni Research said the committee has reasons to raise rates this week, but could hold off with the November 3 US midterm elections approaching. Fed Chair Kevin Warsh is scheduled to take questions from reporters at 2:30 p.m. Eastern on Wednesday. His remarks after the decision may help markets assess whether the pause is temporary or signals a change in the policy path.
Interest-rate expectations shape borrowing costs and the allocation of capital among cash, bonds, equities and crypto assets. If investors expect rates to stay high for longer, risk assets may come under pressure. But prices do not always move in line with the direction of a rate decision: markets often price in expectations ahead of time.
PCE report to test inflation and rate outlook
The PCE price index, due Thursday, is a closely watched inflation gauge for the Fed. Economists expect prices to rise 3.7% year over year, above the Fed’s 2% target and up from 3.4% in August. US economic growth is forecast at 3.2% for the third quarter, compared with 2.2% in the previous quarter. Persistent inflation alongside stronger expected growth leaves the Fed’s next policy steps in focus.
Bond yields also point to pressure from interest rates. The 10-year US Treasury yield closed Friday near 5%, after reaching 5.33% on October 14. The yield influences borrowing costs, including mortgage rates. A hotter-than-expected PCE reading could strengthen bets on a December hike; a softer result could weaken them.
Bitcoin has reacted in different ways to shifts in rate expectations. From May to June this year, it fell from around $82,000 to near $60,000 as hopes for rate cuts faded. After the Fed raised rates in September, however, bitcoin rose from about $75,350 to above $76,100 within minutes. The moves underline that prices depend not only on policy decisions, but also on what markets have already priced in and the signals officials send.
ECB and Bank of Japan decisions add to market variables
The European Central Bank will announce its rate decision on Thursday. Of 73 economists surveyed, 70 expect it to hold rates at 2.50%, while most expect a hike in December. The Bank of Japan is due to decide on Friday; its current rate of 1.25% is the highest since 1995.
Investors worldwide watch Japanese rates because the yen has long been a low-cost funding currency. Some investors have borrowed yen to buy other assets, including crypto. If yen funding costs rise further, those positions could be adjusted. Whether investors unwind them, and how that might affect bitcoin, will depend on positioning and changing policy expectations.
$10.97 billion in Deribit bitcoin options expire Friday
About $10.97 billion in bitcoin options are set to expire on Deribit at 4 a.m. Eastern on Friday. The contracts represent about 35% of the platform’s total open bitcoin options, making this its largest expiry on record. Options give traders the right, but not the obligation, to buy or sell at a set price by a specified date; a large expiry does not, by itself, determine the direction of spot prices.
Call options currently outnumber puts by nearly two to one. The largest single position is a bet on about 19,950 bitcoin at a $95,000 target. From Sunday’s price of $80,472, bitcoin would need to rise about 18% in five days to reach that level. Deribit data also indicate that at a price of $78,000 at expiry, a large share of the related contracts would expire worthless.
This week’s data and central-bank decisions will shape expectations for December policy, while the options outcome will depend on prices at expiry and the structure of the contracts. The next meetings for the Fed, ECB and Bank of Japan are scheduled for December 8-9, December 17 and December 18, respectively. Markets currently price in a greater-than-70% chance of a rate hike at each of the three meetings.