The crypto market faced significant pressure following the release of the September Consumer Price Index (CPI) data, which showed inflation at 3.7% year-over-year, the highest since January. This triggered a selloff that wiped out nearly $100 billion in market value within 24 hours. Bitcoin dropped from around $83,000 to $81,000, while Ethereum fell 5.3%, briefly touching $2,318. The main driver of inflation was energy prices, particularly gasoline, which rose 9.1% month-over-month.
The market reaction was exacerbated by expectations of further Federal Reserve rate hikes. The odds of a rate hike in October stand at 30%, while December hike odds are at 65%. Persistent inflation and higher borrowing costs could delay a market recovery, as elevated rates limit capital inflows into crypto.
ETF demand for Bitcoin and Ethereum has weakened, with spot ETFs recording significant outflows. Bitcoin ETFs saw $679 million in net outflows last week, the largest since late June, while Ethereum ETFs lost $542 million. However, corporate buying continues, with Strive adding 6,133 BTC and Bitmine nearing its Ethereum holding target. The focus now is on whether money will flow back into the market to support a recovery.
The CPI release also triggered nearly $1 billion in crypto liquidations, with long positions accounting for 90% of the total. Ethereum saw around $290 million in liquidations, compared to $200 million for Bitcoin. Despite the heavy liquidations, perpetual futures funding rates remained mostly positive, indicating continued demand for long positions. However, options activity suggests growing caution about further downside, with increased demand for downside protection.