Bitcoin Bulls Remain Cautious as Inflation and Macro Risks Loom

The Federal Reserve’s interest rate meeting on October 28 is the top event of the month, as it will set the tone for the cost of capital across all assets. Currently, the market expects no change in rates. According to the CME FedWatch tool, interest rate futures traders assign an approximately 87% probability that the Fed will hold rates steady, with the next move more likely to occur in December. Of the 14 major brokerages surveyed on October 1, 13 predicted that the Fed would maintain rates unchanged.

During normal times, pausing rate hikes would be welcomed by holders of risk assets. When safe government bonds no longer offer increasingly higher returns, speculative assets like Bitcoin become relatively more attractive. But these are not normal times. Over the year ending in September, consumer prices [3] rose 3.7%, with a 0.6% increase just in September alone. Traders have looked past the Fed’s current pause and are focusing on potential future actions. Futures markets indicate a nearly 90% probability of a rate hike in December. The bond market confirms this: the yield on the 10-year U.S. Treasury [4] has hovered around 5.2% this month, having broken above 5% in September for the first time since 2007. Producer prices [5] are equally concerning: even excluding energy, they rose 5% over the past year.

The September inflation data released on October 14 revealed just how sensitive investors have become. Higher-than-expected figures triggered an immediate market reaction: U.S. stock futures declined, and Oracle, which has heavily invested in AI data centers, saw its shares drop more than 7%. Bitcoin fell from around $83,800 to below $82,000 within hours.

This negative market reaction leaves Bitcoin investors with a difficult question. Long-term on-chain metrics tracking the movement of coins between wallets [6] indicate that Bitcoin remains in a bull market zone. However, short-term indicators are flashing yellow. Should holders hold steady, or sell and wait to repurchase at lower prices?

The reasons for caution stem from both the charts and the broader external environment. Bitcoin’s technical indicators are cooling down, and its supply dynamics are weakening. The forces that drove the previous rally are now beginning to act as resistance.

1. Signal turned to yellow

First, examine the trend model [7] used in the original analysis. This model enters positions upon trend confirmation and exits when the trend is broken, holding the proceeds in stablecoins [8] until the next signal arises. The model turned bullish on July 20, when Bitcoin was priced at $64,807. Since then, Bitcoin has risen approximately 26% to $81,595, before stagnating. Meanwhile, the model’s trend line has risen slightly each day and is currently at $79,654—less than 3% below the current price. A minor pullback would be sufficient to trigger a sell signal. This raises a larger question: Should investors truly follow such signals?

The momentum indicator is also pointing in the same direction. The weekly stochastic oscillator [9] measures where the price stands within its recent range. This indicator fell below 20% in August, a reading indicating the market was oversold [10], and its subsequent rebound preceded this rally. Currently, the indicator is around 90%, a level typically associated with an overbought market. Historical patterns show that when this indicator falls back below this level and simultaneously crosses below its slow moving average, it often signals a weakening trend. A weekly close below $82,000 would confirm this signal. Given the current inflationary environment, the likelihood of this occurring is quite high.

2. The Halving Effect Is Fading

Bitcoin’s own supply logic is no longer as reassuring as it once was. Past cycles were primarily driven by “halvings”[11], scheduled events that cut miners’ rewards for packaging new blocks in half, occurring roughly every four years and halving the rate of new coin inflow. Many holders still structure their strategies around this rhythm, anticipating the familiar four-year cycle[12] to trigger the next bull market. This expectation may no longer hold. Of Bitcoin’s final supply of 21 million, approximately 20.1 million have already been mined, and the annual issuance rate[13] has dropped from 12.9% of the total supply to just 0.82%. Halving this trickle now has a negligible impact. Investors who rely on the calendar may hold through downturns, waiting in vain for a supply shock that has lost its power. Today, price movements are driven more by macroeconomic conditions and investor capital flows—factors often unrelated to cryptocurrency fundamentals themselves.

3. Miners Under Pressure

One stream of funds may come from miners themselves. Miner wallets still hold nearly 1.8 million bitcoins. Many miners have repurposed their low-cost, long-term power contracts by leasing data center computing power to AI companies. While this move seemed shrewd when AI stocks surged, it no longer does. Rising bond yields have increased borrowing costs for expansion, and falling stock prices have eroded the value of their collateral. Selling bitcoins from reserves may be the most convenient way to finance expansion, and the market will have to absorb this additional supply.

4. AI Cycle Shift

Broader AI trading is also faltering. The chip industry has long experienced cycles of boom and bust—from the mid-1990s surge in Windows PCs to the cloud-driven memory chip boom of 2016 to 2018. The AI-driven upcycle that began in 2025 lifted Samsung Electronics and SK Hynix, and fueled South Korea’s stock market. Since its June high, the Korean stock index has fallen 41%. The downturn began just as Samsung completed a $11 billion share buyback [14] and SK Hynitz reached 89% of its $30 billion buyback program. Contributing factors include competition from China, OpenAI’s revenue adjustments, and the delayed IPO plans of Anthropic. Investors in China’s competitor Z.AI, listed in Hong Kong, have seen its stock significantly underperform compared to major U.S. semiconductor indices [15].

5. From the oil pump to the ballot box

Political factors form a closed loop. The U.S. midterm elections [16] will take place on November 3, with voters most concerned about the cost of living. Gasoline and diesel prices remain painfully high due to supply shortages caused by the Iran conflict. Polls suggest the Democratic Party is poised for a sweeping victory, and many Democrats oppose building additional AI data centers. Rising oil prices fuel inflation, which drives voters toward the Democrats, while a Democratic win could slow the expansion of data centers—exactly the future miners are betting on.

But this does not mean the bull market has ended. U.S. Treasury yields may have already peaked. After the inflation data release, the 10-year U.S. Treasury yield briefly rose above 5.3%, then retreated, closing the day at 5.19%. Since then, it has fallen further to just below 5.1%, the lowest level since late September, despite higher-than-expected inflation data. The fact that yields declined despite adverse inflation figures suggests that selling pressure may have subsided. The recent rise in yields appears more like a temporary repricing rather than a lasting shift.

Bitcoin has also demonstrated surprising resilience. When the Federal Reserve raised interest rates in September, Bitcoin was trading at approximately $75,000 to $76,000; since then, it has risen above $80,000, while South Korea’s chip-heavy stock market plunged sharply and AI favorites like Oracle suffered significant declines during the same period. Political factors may also provide additional support. Bank of America data shows that since World War II, the S&P 500 has risen in the six and twelve months following every midterm election, averaging gains of about 13% and 14%, respectively. Since 1970, the index has averaged a 6.5% gain in the three months after the election, compared to just a 2.5% gain in the three months leading up to it. While stock market gains do not guarantee Bitcoin will rise, recent market reactions to inflation data suggest the two have become increasingly correlated. Meanwhile, as long as Bitcoin holds above approximately $75,500, the long-term on-chain sentiment remains bullish.

Hold or Exit

All of this brings up one of the oldest debates in investing: buy and hold, or market timing [17]? Buy-and-hold [18] has many advantages: it’s low-cost, simple to execute, and requires no forecasting. Most importantly, it ensures investors are positioned in the market during the few critical days that often account for the majority of an asset’s gains. Bitcoin’s history is filled with sudden, sharp rallies that have rewarded those who held firm; investors who bought 11 years ago and never sold have reaped substantial returns. For those with a long investment horizon and high tolerance for volatility, staying put remains a sound strategy.

However, the past five years have been less favorable. During this period, the annualized return for a buy-and-hold Bitcoin strategy was approximately 8%, while a trend-following model—exiting when prices fell below the trend line and re-entering when they rebounded—achieved an annualized return of about 25%. The difference stems more from avoiding losses than from capturing gains. Bitcoin has repeatedly halved, and sometimes fallen even further, during bear markets; a portfolio that declines by 50% needs to double just to break even. Avoiding the most severe downturns is more important than catching every rebound. Funds held on the sidelines don’t have to sit idle: depending on the product and terms, stablecoins can generate returns while investors wait for the next signal. Of course, past performance is not indicative of future results.

Exiting and re-entering the market also comes at a cost. Trend signals can sometimes be wrong. After a sell signal is triggered, if the price quickly rebounds, investors may have to buy back at a price higher than their sell price; in sideways markets, such false signals [20] can occur in succession. Each trade incurs transaction costs and, in some jurisdictions, may also trigger tax liabilities. This approach also requires investors to do something many find difficult: sell when the long-term outlook remains positive, and buy back when market sentiment may be worse than before. The reason rule-based models are useful is precisely because they make these decisions for investors.

Neither strategy always wins. Buy-and-hold performs best during bull markets that progress smoothly without major interruptions; trend following excels when sharp declines interrupt upward trends. The current environment more closely resembles the latter scenario: a structural uptrend remains intact, but inflation, rising yields, and stressed miners could trigger a sharp pullback along the way.

Evidence shows that what’s needed now is discipline, not despair. If the price falls below the trendline, the model will signal taking profits from the summer rally and holding stablecoins until the next buy signal emerges. If the bull market resumes, this signal will naturally appear, allowing investors to re-enter with their principal intact. This approach may feel like losing faith in the bull market, but a more accurate interpretation is that it’s a way to stay within the bull market. After all, you can only buy low after selling high.

BIT offers spot and derivatives trading for Bitcoin, along with fixed-income products, helping investors execute rule-based investment strategies in both rising and falling markets. Subject to applicable terms.

Glossary

1. FOMC Meeting: The Federal Open Market Committee (FOMC) of the Federal Reserve holds meetings to vote on interest rates. The committee meets eight times per year, and its decisions influence global borrowing costs, the U.S. dollar, and asset prices.

2. Interest rate futures are contracts that allow traders to bet on the level of the Federal Reserve's benchmark rate at a specific future date. The CME FedWatch tool converts their prices into market-implied probabilities of various possible outcomes for each meeting.

3. The Consumer Price Index (CPI) is a monthly measure of changes in the prices of a basket of goods and services purchased by U.S. households. The overall figure includes food and energy; the "core" figure excludes these two categories due to their high volatility.

4. 10-Year U.S. Treasury Yield: The annualized return investors earn by purchasing U.S. government bonds maturing in ten years and holding them until maturity. It is regarded as the benchmark "risk-free rate" for evaluating other investments.

5. The Producer Price Index (PPI) is a monthly measure of the prices received by businesses for their goods and services. Since companies often pass on rising costs to customers, it can serve as an early warning of price increases that will later appear in the CPI.

6. On-chain metrics: Indicators built from data recorded on the blockchain itself, such as the holding duration of coins, holders' purchase costs, and the movement of coins between wallets. These metrics are used to assess Bitcoin’s position within long-term cycles.

7. Trend Model: A systematic strategy that follows the direction of price. Hold the asset when the price remains above the trend line (a reference level calculated from historical prices), and sell when it breaks below.

8. Stablecoins are cryptocurrencies designed to maintain a fixed value, almost always $1, typically backed by reserves of cash and short-term government debt. USDT and USDC are the largest.

9. Stochastic Oscillator: A momentum indicator that compares the latest closing price to the highest and lowest prices over a specified period, with values ranging from 0 to 100. A higher reading indicates that the price is closer to the top of the recent range.

10. Overbought and Oversold: These terms indicate that a market has risen (overbought) or fallen (oversold) too much or too quickly, increasing the likelihood of a pause or reversal. On the Stochastic Indicator, readings above 80 to 90 are typically considered overbought, while readings below 20 are considered oversold.

11. Halving Bitcoin miners’ reward for packaging each new block is scheduled to be reduced by 50% every 210,000 blocks, approximately every four years. This halving cuts the number of new coins entering the market in half.

12. Four-year cycle: Bitcoin prices tend to reach peaks and troughs approximately every four years, largely aligned with the halving schedule.

13. Issuance Rate: The percentage of new coins created within a year relative to the existing supply, effectively representing Bitcoin’s own inflation rate.

14. Stock Buyback: A company uses cash to repurchase its own shares from the market. This reduces the number of outstanding shares and often supports the stock price during the implementation period.

15. Semiconductor Index (SOX): The Philadelphia Semiconductor Index tracks large chip companies listed in the U.S. and is the most closely watched indicator of chip industry stock performance.

16. Midterm elections: Elections held midway through a U.S. president’s four-year term, during which all seats in the House of Representatives and approximately one-third of the Senate seats are up for election.

17. Market Timing: Attempting to buy before price increases and sell before price declines, rather than holding through every up and down cycle.

18. Buy and Hold: A strategy of holding onto an asset regardless of short-term market fluctuations.

19. Bear Market: A sustained decline in prices, typically defined as a drop of 20% or more from a recent high.

20. False Signals Indicator signals that are quickly reversed, such as a sell signal followed by a sharp price rebound. In sideways markets, these recurring false signals are sometimes called “whipsaw.”

This article is adapted from the research of an independent analyst and incorporates reports from the sources listed above. The views expressed herein are those of the original analysis and do not necessarily reflect the views of BIT. This article is for informational purposes only and does not constitute any investment, financial, or trading advice, nor is it an offer or solicitation to buy or sell any assets. Model results are based on historical analysis; past performance is not indicative of future results. Investing in digital assets carries high risk; readers should conduct their own research and consider their individual circumstances before making any investment decisions.