The ETF bid left before the hike

Macro

August PPI printed 0.4% on the month and 5.4% on the year on Thursday, and CPI on Friday came in at 0.4% headline with core at 0.3% against 0.2% August PPI printed 0.4% on the month and 5.4% on the year on Thursday, and CPI on Friday came in at 0.4% headline with core at 0.3% against 0.2% expected. Gasoline was over a third of the monthly increase. Goldman changed its September call from hold to hike the same afternoon, and futures moved from a 60% to an 87% probability of a 25bp hike by the weekend. While the September hike is largely priced in here, the comments about any future hikes will be important. There is still a chance of no hike, but we suspect that commentary around further hikes into 1Q27 will define Wednesday's reaction and the short-term direction of the market.

Brent traded through $100 on Monday and $105 on Thursday after US and Iranian strikes in the Gulf, the 10-year yield reached its highest level in two decades, and US equities fell four days in a row before a bounce on Friday. Oil was the only asset on our board that gained. In a week where the market sold anything that needs lower rates, BTC traded as the most rate-sensitive asset on the board, behind small caps, gold and long bonds. Last week was largely driven by the release of US macro data and the continued escalation in the Middle East, with the latest being that Saudi Arabia closed a pipeline that bypasses the Strait of Hormuz this morning after drone attacks, meaning that oil is still moving into the Fed decision.

Digital Assets

BTC traded between $76k and $79.9k all week and closed Sunday at $76,838, down 4.4%. ETH closed at $2,477, down 1.5%, and altcoins as a group gained 1.0%. The $76k to $82k range has now held for four weeks. BTC has been rejected at $82k three times since August and has not yet tested $72k.

BTC ETFs saw $463M of outflows over the holiday-shortened week, the first negative week since the June low. ARK and Grayscale accounted for $371M of it, BlackRock was flat. ETH ETFs took in $197M for the week, but only because of a $216M inflow on Friday after CPI; Tuesday through Thursday were net negative. The ETF bid that carried BTC from $63k to $82k over the past three weeks was absent this week, and BTC lost $3.5k without it.

While alts continued to chop around, Robinhood Chain, which was top of mind the week before last, saw revenue down 69% on the week, from a $6.0M peak on 4 September to $485k on Sunday, while DEX volume on the chain was flat at $14.0B and TVL rose to $930M. Activity on chain largely stayed, but chain revenue is gas paid, and gas tracks transaction count rather than dollar volume. PONS launchpad volume fell 17% and the token-creation frenzy of early September faded, while Uniswap volume on the chain rose 28% on fewer, larger swaps in tokenized stocks.

Revenue per dollar of volume fell 85% in nine days, and the gas subsidy that produced the September spike expires at month end. The tokens we flagged on Robinhood Chain revenue are now trading on a revenue line that has already fallen 69% before the subsidy is even gone.

Our take:

“First ETF outflows since June and BTC the worst asset on our board. Despite the cut largely priced in we'd lean neutral (vs constructive) into Wednesday."

After the ETF flows turn negative again, we’d lean more neutral vs constructive here. The case for crypto since August has been money leaving expensive equities and finding its way into BTC through the ETFs, and this week the flows went the other way while BTC fell more than the equities it was supposed to be drawing from. That does not end the thesis, it removes the reason to be positioned for it in front of a Fed hike. Without the ETF bid, BTC sits in a $76k to $82k range with no marginal buyer.

Two dates matter this week. (i) Tuesday 2:15pm ET, the Senate votes on opening debate on the CLARITY Act, the US market structure bill. It needs 60 votes, Republicans have 53. A pass here could drive a surprise move to the upside, a fail feels pretty much priced in. (ii) Wednesday 2pm ET, the Fed hikes 25bp to 3.75% to 4.00%, the first hike in three years. The hike is priced, any subsequent hawkish commentary from Warsh is not. One hike is expected but narrative around multiple into 1Q27 could drive crypto down.

The second half of this month is more quiet on the macro headlines so this week will largely define the tone into 4Q26