October's Potential for Bitcoin Linked to Federal Reserve's Decisions and Stock Market Movements

Bitcoin’s trajectory this October seems contingent upon the Federal Reserve’s hints at possible interest rate reductions, alongside the behavior of crucial U.S. stocks.

Key Takeaways:

Bitcoin has recorded a 4.3% decline this October, despite a historically strong track record for the month.
The CME FedWatch tool suggests a 96.7% likelihood of a 25 basis point cut in interest rates, generating optimism.
Inflows into spot Bitcoin ETFs and their correlation with equities suggest a potential recovery.

Bitcoin (BTC) is experiencing a 4.3% downturn this October, yet the hope for a traditionally bullish trend for the month is alive. Since 2019, Bitcoin’s mean gain for October has hovered near 20%, with typical returns around 15%. Although this month’s performance is currently lagging, investors are watching policy changes in the economy for signs of revival.

The CME FedWatch tool indicates a substantial 96.7% probability for a 25-basis-point interest rate cut. Such a reduction typically indicates increased liquidity in the market, easing borrowing costs and enhancing risk sentiment across various asset classes, including crypto like Bitcoin.

Fed Reserve interest rate cut probability Source: CMEGroup

Institutional investments appear to be anticipating this scenario, with nearly $5 billion flowing into Bitcoin ETFs in the initial weeks of October, suggesting renewed confidence from significant investors.

Additionally, Cointelegraph reported that total institutional investments in public companies now reach $117 billion, a 28% increase quarterly, with over one million BTC held across corporate treasuries. The ranks of institutional participants grew by 48 in Q3, further integrating mainstream investments into digital assets.

Stock Correlation and Next Steps for Bitcoin

Bitcoin’s vulnerability appears tied to the stock market’s dynamics. Macroeconomic analyst Jesse Colombo has mentioned that Bitcoin’s 92% correlation with the Nasdaq positions it as a “leveraged play on tech stocks.” This became evident last Friday when the S&P 500 dropped by 2.7%, the Dow Jones by 1.9%, and the Nasdaq 100 Composite by over 4.2%, resulting in a corresponding drop for Bitcoin.

BTC, SPX, DJI, and NAS100 correlation Source: Cointelegraph/TradingView

The market’s decline was triggered by escalating trade tensions between the U.S. and China due to reports of possible 100% tariffs on Chinese goods, which unsettled the risk landscape. However, as markets stabilized this week, while U.S. stocks started to regain ground, Bitcoin’s recovery was slower.

Jurrien Timmer, Director of Global Macro at Fidelity, noted that the recent pullback mirrors the late-1990s ‘super bull’ phase, where speculative assets experienced sharp, short-term downturns before rising significantly again.

Should U.S. equities continue their recovery into earnings reporting, conditions could become favorable for Bitcoin’s revival. A renewed surge in tech and growth stocks, supported by a lax monetary policy, may carry “Uptober” positivity further into the month’s close.

Bitcoin price outlook with respect to ETFs/ETPs demand Source: Jurrien Timmer

This article is not intended to provide investment advice. Investment carries risks, and readers are advised to conduct their own research prior to making financial decisions.