Bitcoin Trapped Below $86K as PCE Changes Cloud Inflation Reading

Bitcoin (BTC) held above $83,000 on Thursday after giving back gains following lower-than-expected US inflation data.

Key points:

• Bitcoin remained rangebound after its latest rally stalled at $85,600.
• US PCE inflation data came in lower than expected at 3.4% year-on-year, but methodology changes complicated the reading.
• BTC-denominated open interest fell almost 20% while its price rose 35% from its August low.

Bitcoin gives back gains after PCE release

Data from Coinbase showed BTC/USD flat on the day after a brief bout of volatility ahead of September’s monthly and third-quarter close.

BTC/USD one-hour chart. Source: Cointelegraph/TradingView

Bitcoin began Q4, historically its strongest quarter, at around $83,550, after posting third-quarter gains of 42.7%, according to data from CoinGlass — its best Q3 performance since 2017.

BTC/USD quarterly returns (screenshot). Source: CoinGlass

CoinGlass’s liquidation heatmap showed potential liquidation clusters above and below Bitcoin’s market price.

On Thursday, a new $60 million cluster of estimated liquidation exposure appeared near $83,000, close to key support at $82,500 — a level that analysis marked as critical for Bitcoin’s broader rebound from June lows.

BTC liquidation heatmap. Source: CoinGlass

Bitcoin’s latest rally stalled Wednesday, with BTC/USD reversing at $85,600. The advance followed a lower-than-expected US inflation reading. The Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred inflation gauge, came in at 3.4% year-on-year in August, versus expectations of 3.7%.

“Excluding food and energy, the PCE price index increased 3.0 percent from one year ago,” an official release from the Bureau of Economic Analysis (BEA) stated, referring to core PCE.

US PCE index. Source: BEA

The release also incorporated methodology changes affecting portfolio management and investment advice, computer software and accessories, and legal services. 

“We estimate the methodology alone could reduce Core PCE inflation by up to 20 basis points,” market commentary publication The Kobeissi Letter wrote on X, noting that July headline and core PCE inflation had also been revised downward by 30 basis points.

Kobeissi forecast that markets would “heavily discount” the August reading. The S&P 500 closed Wednesday down 0.25% at 7,651 points, while the Dow Jones Industrial Average shed 0.86%.

Data from CME FedWatch Tool showed that markets put the probability of a quarter-percentage-point rate increase at the Fed’s October meeting at around 37% on Wednesday, little changed on the day. Unlike last week, markets favored keeping the federal funds target range unchanged at 3.75%–4%.

Fed target-rate probability comparison for October FOMC meeting (screenshot). Source: CME Group

Open interest falls to lowest since March despite Bitcoin gains

Falling futures open interest could make Bitcoin’s rally less vulnerable to forced liquidations, according to onchain analytics platform Glassnode.

Related: Altcoin exchange deposit count jumps 160% in 2 weeks

Glassnode highlighted a divergence between Bitcoin’s price and BTC-denominated open interest (OI), which measures outstanding futures positions in Bitcoin terms.

“Price is up 35% from the August low, while coin-denominated open interest is down almost 20%,” it wrote on X. 

“That puts open interest at its lowest since March, potentially making the rally less susceptible to leverage flushes.”

Bitcoin coin-denominated OI vs. BTC/USD. Source: Glassnode on X.com

As Cointelegraph reported, sell orders around $85,000 and long-term holder coins clustered in the $84,000–$85,000 range could reinforce resistance above the current price.