BTC Loses $82.5k Into the FOMC

Macro

Brent rose 5.66% to settle at $116.72 as Houthi attacks on Saudi oil infrastructure pushed crude to its highest settlement since spring, which puts oil ahead of AI financing as the market’s main worry for a second. Last week we said AI funding worries would wait for an earnings miss, however even earnings beats did not stop the tech selloff once investors focused on spending. Friday’s selling then spread to most stocks as crude kept rising.

The S&P 500 closed at 7,624, down only 0.43%, with small caps up 1.96% and Treasuries up 1.61% while the Nasdaq fell 0.76%, BTC 2.43% to about $80.5k and ETH 3.40% to about $2.33k, which reads as a rotation out of AI with risk appetite intact. The 10y settled at 4.99% and gold at $4,008.

Wednesday’s FOMC is priced as a hold at about 86% as of October 18, with a December hike the expected next move, so the statement’s treatment of December is the risk with crude above $100 feeding the inflation read. It will define the market for at least the next week, and we flag $120 on Brent as the level where the inflation read gets harder to look through.

Wednesday’s FOMC is priced as a hold at about 86% as of October 18, with a December hike the expected next move, so the statement and Warsh’s press conference are the only new information, with no projections due until December. That wording will define the market for at least the next week.

Digital Assets

BTC lost $82.5k, the level we flagged as resistance on the way up and as support since, and tested $80k for a third time in three weeks, with the week’s high of $84.9k set on Wednesday when AI earnings and a short squeeze lifted it and the low near $79.1k set on Saturday. As we flagged last week, a clean loss turns the flipped support back into resistance, so BTC needs to reclaim $82k to $82.5k in the near term for any trend to continue.

If $80k fails, $76k is the next level to hold, the base of the range BTC broke out of, and a clean loss of it would put the low $70ks in play, which is the half of last week’s call that has not triggered yet.

BTC has oscillated around $80k and $82.5k for three weeks, which leaves Wednesday’s FOMC as probably the defining factor for the direction of the break, since the decision sets the yield path that the Nasdaq, and through it BTC, has been trading on. A statement that leans on December would push yields back up and test $80k again, while one that leaves December open would give BTC room to reclaim $82k, at least until Thursday’s PCE.

BTC rose with the AI rebound on Wednesday and fell with the chip selloff on Thursday, so it’s clear that BTC is following a wider macro closely now that ETF flows have started becoming more two sided after a previous stronger period of inflows which lifted the BTC higher.

Part of the market still treats higher lows and higher highs from here as a given because we are in a four-year cycle, and we think that is naive, since the equity market now carries both the wealth and the leverage. Households and nonprofits’ equity holdings rose $9.7T in Q2, margin debt hit a record $1.5T in June, and about 85% of leveraged ETF assets sit in tech, AI and semiconductors, the trade that sold off on Thursday, so a selloff there cuts wealth and forces deleveraging, which feeds the selling and makes the large pockets of the market, including crypto, more reflexive, which many do not appreciate. With corporate balance sheets also levered to the AI buildout, the Fed having hiked in September and CPI at 3.7%, an unwind meets fewer backstops.

Crypto’s upside leans on retail money, the equity wealth effect and ETF flows, and the flows are following the Nasdaq, with $636M leaving on Thursday, the largest outflow since June, as the Nasdaq fell 2.6%. Macro carries worries in AI, energy, inflation and the bond market. Despite this, equities and risky assets continue to shake off worries (for now).

Our take:

“IBTC trades with AI news inside a reflexive equity market, so we stay cautious until the FOMC/PCE is cleared without surprises and $82.5k is reclaimed with $76k the next level to hold

The desk is seeing little directional conviction at these levels ahead of Wednesday’s FOMC. A dovish hold followed by hotter than expected PCE on Thursday would leave the Fed behind inflation and trigger a selloff led by the same AI names that sold off last Thursday, and that would likely include BTC. A surprise hike, which is unlikely, would clear the December overhang and could lead to a relief bounce.

There are still a lot of macro worries, but as long as there is no clear break visible, equities are likely to keep grinding up, even though BTC has not shared in that for three weeks. Since it is not clear what could break, any selloff can catch many off guard. We are not bearish, but we stay cautious until the FOMC is behind us and BTC reclaims $82.5k.

Key catalysts are the FOMC decision on Wednesday October 28 at 2:00 p.m. ET, Q3 GDP and September PCE on Thursday October 29, the monthly options expiry on Friday October 30, Q3 earnings running through the week and the midterms on Tuesday November 3.