Bitcoin Boosted by Softer Rate Hike Expectations, but Fiscal Concerns Remain

The Federal Reserve's interest rate hike expectations have softened in recent days, and this shift is being seen as beneficial for Bitcoin. New York Fed President John Williams stated that September's 25bp hike had reduced the urgency for further tightening, giving the Fed time to assess incoming data.

As a result, the implied probability of an October rate hike has fallen from around 75% to approximately 37%. This reduction in expected policy rates makes cash and short-duration Treasuries less attractive, which can improve conditions for liquidity-sensitive assets like Bitcoin.

However, there's a divergence on interest rates. Long-dated yields have moved in the opposite direction, with the 10-year Treasury briefly reaching its highest level since 2002 at around 5.3%. This indicates concern about US fiscal sustainability rather than tighter monetary policy alone.

Investor positioning has not followed the macro improvement, with inflows into digital asset investment products totaling only around $150M this week, down from approximately $3.5B last week. This suggests investors are becoming more selective after a strong period of inflows.