- Elevated September CPI print sooks investors, reducing expectations for future interest rate cuts by the Federal Reserve
- Spot trading volumes on centralized crypto exchanges hit the lowest level since June 2022
- Outflows from spot Bitcoin ETFs as investors adopt a risk-off sentiment amid a strengthening U.S. dollar
The crypto market took an unexpected turn downward to start the fourth quarter. In this article, we’ll examine the key factors driving the broader crypto market sell-off.
Disappointing September CPI Report
The September Consumer Price Index (CPI) report showed that inflation rose 0.2% month-over-month and 8.2% year-over-year. This was higher than market expectations for a 0.1% monthly gain and 8.1% annual increase.
The disappointing inflation print led investors to reassess the likelihood of the Federal Reserve pausing interest rate hikes in November. Following the Fed’s aggressive 0.50% rate cut in September, crypto prices rallied as investors anticipated an equally large rate reduction at the November FOMC meeting.
However, the latest CPI data shows the chances of a 50 basis point November rate cut are now zero. In fact, futures markets are pricing in a 91% chance the Fed leaves rates unchanged, up dramatically from 0% one week ago. It now appears unlikely we’ll see any additional 50 basis point cuts for the remainder of the year.
Declining Spot Trading Volumes
According to a report from cryptocurrency analytics platform CCData, spot trading volumes on centralized exchanges (CEXs) hit their lowest level since June, following three consecutive months of growth.
The combined spot and derivatives trading volume on CEXs dropped 17% to $4.3 trillion in September, the lowest monthly trading activity this year. Monthly spot volumes fell 17.2% to $1.27 trillion, also a 2022 low.
Analysts attributed the drop in volumes to the final month of a seasonal period typically marked by lower trading activity. With upcoming catalysts like the U.S. midterm elections, volatility and exchange activity is expected to pick back up.
Outflows from Bitcoin ETFs
The risk-off sentiment is also evident in Bitcoin spot ETFs, which have seen consistent outflows in recent days. As of October 10th, these ETFs had a cumulative flow of $1.87 billion, down about 0.7% from their September 30th peak of $1.88 billion.
The outflows align with a rise in the U.S. Dollar Currency Index (DXY), which measures the dollar’s strength versus major foreign currencies. A stronger dollar often signals declining risk appetite among investors, contributing to the accelerating outflows from Bitcoin ETFs.
Conclusion
The unexpected September CPI report, declining spot volumes, and outflows from Bitcoin ETFs have all contributed to the crypto market’s downward move to start the fourth quarter. As the Fed’s November meeting approaches, the markets will closely watch incoming data like this week’s employment figures to reassess the likelihood of additional rate hikes for the remainder of 2022.
