Editor's note: In early October, Bitcoin pulled back from around $87,200 to $80,300, then reclaimed $81,300. Leverage flush-out and easing loss-selling left room for a rebound. But above the price, $84,000 to $86,500 still holds a large concentration of positions, and the ETF average cost basis sits near $84,300. The closer the rebound gets to these levels, the more likely it is to encounter breakeven exit selling.

Bitfinex Alpha noted in its latest report that whether CPI can ease rate hike expectations is only the first step in reading the market. If real rates remain elevated, low-risk assets will not lose their appeal to capital in any meaningful way; if ETF flows only return briefly, buying may not be enough to absorb overhead supply. A positive catalyst can be the starting point of a rebound, but sustained upside requires confirmation from both real rates and spot demand.

The full text is as follows:

CPI needs to prove inflation pressure is easing

At the time the Bitfinex report was published, the U.S. economy had not yet shown a combination strong enough to make the Fed set aside the rate hike option: core inflation remained elevated, and corporate investment stayed resilient.

Among the data cited in the report, the core Personal Consumption Expenditures price index (PCE) rose 3% year-over-year. Capital goods imports increased by $6.2 billion in August, with semiconductors contributing $2.4 billion, indicating that tariffs have not yet significantly deterred businesses from purchasing equipment.

However, the import increase cannot be entirely explained as strengthening demand. In August, the U.S. trade deficit widened from a revised $92.8 billion to $105.6 billion; of the $17.2 billion increase in imports that month, crude oil and gold contributed $3.3 billion and $3.1 billion, respectively.

Bitfinex's assessment is that businesses are still investing, but tariffs have raised investment costs and, together with expenses such as fuel and transportation, are creating pressure on commodity prices. Monetary policy can influence demand, but it is difficult to directly eliminate these sources of cost.

Growth expectations have also not weakened significantly. As of October 8, the Atlanta Fed's GDPNow model estimated third-quarter economic growth at an annualized 3.6%. This figure is a model estimate updated with data, not an official GDP result.

With growth remaining resilient and core inflation still above target, the Fed has reason to keep the option of further rate hikes open. The September meeting minutes cited in the report also showed that most officials believed another rate hike before the end of the year could be appropriate.

Therefore, the U.S. September CPI released on October 14 became an important node for the market to reassess the policy path. This was also the last consumer inflation reading before the Fed meeting on October 27-28.

The expectation cited in the report at the time was that headline CPI would rise from 3.4% year-over-year to 3.6%; market pricing reflected about a 20% probability of a rate hike in October and about a 70% probability of a hike before December.

Bitfinex focused more on the month-over-month change in core CPI: if the increase was 0.2% or lower, it could ease rate hike expectations; if it was 0.3% or higher, it would be harder to significantly change the interest rate outlook.

These values are scenario references set by the report. The impact after the data release also depends on how it differs from market expectations, as well as the reaction of Treasury yields, the dollar, and capital flows.

For BTC, the significance of CPI lies in whether it can change the funding environment. Weaker data helps reduce policy pressure, but whether this improvement can be sustained still needs confirmation from the bond market.

Real rates are not falling, and funding pressure on BTC remains

Even if the Fed does not raise rates immediately, the bond market may continue to push up financing costs.

The report said that on October 9, the U.S. 10-year Treasury yield closed at 5.24%, little changed from 5.28% a week earlier. But a Freddie Mac survey showed that the 30-year fixed mortgage rate rose to 7.40% on October 8, up from 7.03% two weeks earlier and significantly above 6.30% a year earlier.

The policy rate has not been adjusted, yet household borrowing has already become more expensive. This shows that long-term market interest rates themselves are already exerting a tightening effect.

However, pressure on housing finance does not mean that overall financial conditions have tightened significantly. The Chicago Fed National Financial Conditions Index (NFCI) cited in the report stood at -0.494 for the week ended October 2, compared with -0.545 a month earlier.

A reading below zero means financial conditions are looser than the historical average; moving toward zero indicates some tightening. In other words, while the overall environment has tightened slightly from before, it remains relatively loose.

Rising stock prices and narrower corporate bond spreads have offset part of the impact of higher long-term yields. Therefore, Bitfinex believes that rising mortgage rates alone are not enough to rule out another rate hike. If overall financial conditions tighten further, the market's own restraining effect could provide the Fed with more room to wait.

For Bitcoin, what deserves more attention is the real interest rate after adjusting for inflation. The report said that on October 9, the U.S. 10-year real Treasury yield was 2.91%.

When low-risk assets can offer relatively high real returns, the potential return investors demand for taking on Bitcoin's volatility also rises. Whether the pressure comes from the Fed continuing to raise rates or long-term bond yields staying high, this competition for capital may persist.

Bitfinex views a decline in real yields to about 2.5% as an observation signal that pressure is easing; if it remains above 3%, it means resistance may strengthen further. These levels are references within the analytical framework, not fixed thresholds that determine BTC's rise or fall.

Therefore, to judge whether CPI constitutes a sustained positive factor, one cannot look only at whether the probability of a rate hike has declined, but must also observe whether real interest rates fall in tandem. If improved policy expectations are not translated into changes in capital allocation conditions, support for BTC may remain limited.

Whether the rebound can continue ultimately depends on spot buying

Bitcoin has already passed one support test.

From the October 2 high of $87,197 to the October 8 low of $80,347, BTC pulled back about 7.9%. After the previous support level of $84,000 was lost, the price quickly fell back to around $81,300, the upper edge of the original range, and then recovered on the same day.

Bitfinex believes that this decline has not yet clearly exceeded the scope of a pullback within the recent rebound process. Since the July low, the previous five pullbacks exceeding 5% ranged from 5.1% to 8.9%.

The cost basis distribution also shows that investors who entered earlier did not exit in a notably concentrated manner. The amount of BTC with a cost basis between approximately $77,600 and $81,300 remained basically stable, while coins with a cost basis between $81,300 and $83,200 increased from 179,000 to 537,000, reflecting turnover and absorption during the pullback.

Loss-selling by short-term holders was likewise relatively limited. The Short-Term Holder Spent Output Profit Ratio (STH-SOPR) measures whether recently acquired coins are, in aggregate, in profit or loss when spent. The metric briefly fell below 1 on October 8 and returned above 1 the next day, indicating that loss-driven transfers did not continue to spread.

However, of the 14 similar historical cases reviewed in the report, only 7 recorded higher prices 30 days later. Holding support and easing loss-selling help stabilize the market, but cannot alone confirm an uptrend.

The leveraged market has also completed a round of adjustment. On October 8, total crypto market liquidations reached $1.18 billion, of which longs accounted for about $1.05 billion. Perpetual contract open interest (OI) denominated in BTC fell by about 3% during the pullback and continued to decline during the initial rebound; the annualized funding rate also fell from about 6.7% on October 5 to near neutral.

This means the rebound has not yet been accompanied by a large amount of new leverage, and the risk of cascading liquidations has declined compared with before. Bitfinex interprets this as a rise in the importance of spot support, but a decline in open interest may also include short covering, and is not enough on its own to prove that spot demand has fully recovered.

Whether buying interest returns needs to be observed through ETF fund flows.

In the week described in the report, U.S. spot Bitcoin ETFs saw net outflows of $678.9 million, the first weekly net outflow since early September and the largest since the week of June 22. Among them, single-day net outflows on October 7 were $484.9 million; only on October 9 did small net inflows resume, at $21.1 million.

The withdrawals were mainly concentrated in some products. BlackRock's IBIT was nearly flat in fund flows for the week, while Fidelity's FBTC and ARK's ARKB saw net outflows of $380.3 million and $207.2 million, respectively. Based on this, Bitfinex believes this is closer to some investors reducing positions, and does not yet indicate a broad retreat from the entire ETF market.

But the rebound faces clear cost resistance. The report estimates that the average ETF holding cost is about $84,340; at the same time, about 1.45 million BTC has a holding cost between $84,000 and $86,500.

When price returns to this zone, some holders may choose to exit at breakeven. If new capital inflows are insufficient, potential sell pressure could easily cap the rebound.

Bitfinex believes that several consecutive trading days of restored net inflows, even if modest in size, could help price return above $84,000. To further challenge the year's opening level, stronger demand would be needed. The report cites average daily ETF net inflows of approximately $340 million during the September rally as a reference for gauging capital strength.

The altcoin market offers another reminder: risk appetite has not yet fully recovered. The median drawdown from high to low for major altcoins this cycle was 14.8%, roughly 1.9 times that of BTC. U.S. spot Ethereum ETFs saw nine consecutive trading days of net outflows, totaling $697.4 million. Even though the percentage rebound from the lows was larger, because these assets fell deeper previously, they remain further from their prior highs.

Therefore, Bitcoin's stabilization needs to be distinguished from broader improvements in capital flows.

In an October 12 report, Bitfinex's base case was that BTC would oscillate between $81,300 and $84,500 before the CPI release. Downside support and lower leverage help stabilize price, while potential sell pressure above and high real interest rates cap the rebound.

If price holds above $84,500 with consecutive ETF net inflows, it would indicate demand recovery is stronger than the base case, and the next focus would be the year's opening level of $87,722.

If price remains below $81,300 for more than one trading day, accompanied by renewed ETF outflows and short-term holders selling at a loss for several consecutive days, it would signal that previous absorbing strength is weakening. At that point, the next potential support the report focuses on is near the on-chain True Market Mean of approximately $77,400.

BTC has already proven there is absorption below. Next, CPI needs to ease policy pressure, real interest rates need to confirm an improving capital environment, and spot buying needs to absorb overhead supply. Whether these three can form signals in the same direction will determine whether this rebound can continue.

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