Key Takeaways
- Crypto fund flows cooled after $11.1 billion arrived since mid-July.
- Expanded Treasury buyback limits remain in effect through Nov. 4.
- Bitcoin ETFs lost $487.07 million on Oct. 7 as buying weakened.
U.S. Debt Fears Put Bitcoin’s Monetary Role in Focus
Concerns about U.S. public finances could attract investment into assets outside government control, according to Coinshares. James Butterfill, head of research at the digital asset investment firm, outlined that conditional outlook in an Oct. 8 market update. His bitcoin breakout argument centers on fiscal sustainability, the government’s ability to meet its long-term financial obligations.
Higher bond yields typically make interest-paying alternatives more attractive and tighten financial conditions, meaning the cost and availability of credit. A yield measures a bond’s annualized return implied by its price.
Butterfill argues that borrowing costs driven by fiscal anxiety may instead encourage allocations, or portions of portfolios, to decentralized digital assets, which operate without a single controlling issuer. Their blockchain networks maintain shared records of ownership and transfers, unlike sovereign currencies issued by national governments.
Coinshares stated:
“In our view, the absence of flow momentum reflects uncertainty rather than deteriorating fundamentals.”
The firm reported slowing digital asset fund flows, meaning money entering or leaving investment products, following $11.1 billion of inflows since mid-July. It attributed much of that earlier demand to purchases at depressed valuations, or prices investors considered relatively low.
Larger Treasury Buybacks Leave Borrowing Costs Elevated
Long-term borrowing costs remained elevated despite expanded repurchases, with daily Treasury yield figures putting the 10-year rate at 5.31% on Oct. 5 and the 30-year rate at 5.67% on Oct. 7. By Oct. 8, those readings had eased to 5.22% and 5.60%, respectively.
Announced in August and effective Sept. 9 through Nov. 4, expanded long-end buybacks repurchase longer-term bonds to improve trading. Maximum purchases rose from $2 billion to at least $4 billion per operation in the 10-to-20-year and 20-to-30-year maturity sectors, categories defined by the time until repayment. Actual purchases depend on the offers Treasury accepts.
Butterfill described September as the worst month for U.S. government bonds in four years, with Treasury’s response not intensifying as rates climbed. The 10-year rate increased more than 50 basis points, or half a percentage point, as long-term yields reached two-decade highs. Treasury Secretary Scott Bessent acknowledged limits to controlling the bond market and highlighted oil prices, the analysis noted.
Fund Withdrawals Challenge the Breakout Outlook
U.S. spot bitcoin exchange-traded funds (ETFs) attracted $241.08 million in weekly inflows through Oct. 2, roughly 90% below the preceding week’s $2.39 billion. Subsequent trading brought $487.07 million in net withdrawals on Oct. 7, while the cryptocurrency fell below $81,000 on Oct. 8, complicating the gradual-advance assessment. Bitcoin traded at $82,958 at the time of writing on Oct. 9, following another $244.13 million in ETF outflows on Thursday.
That reversal followed an earlier shift described by digital asset manager Grayscale in August. Its analysis identified stronger correlation with gold and weaker correlation with technology stocks. Those relationships can change over time.
Mixed economic signals continue to complicate the policy outlook, with weaker employment contrasting with resilient activity and persistent inflation pressure. The update described expansionary purchasing managers’ indexes, surveys tracking business conditions, and resilient consumer spending, alongside elevated energy prices partly linked to the Iran conflict. Inflation remained the expected deciding factor for the next major policy move.
Coinshares reported that weaker September payrolls had reduced the implied probability of an October rate hike to 23%, from 71% three weeks earlier. This is the likelihood inferred from market pricing.
