Bitcoin risks worst October in six years following high US inflation data and S&P 500 correlation

Bitcoin (BTC) and the crypto market trended downward on Thursday as the US Consumer Price Index (CPI) data for September showed that inflation is rising again, reducing the already slim chances of the Federal Reserve cutting its interest rate by another 50 basis points in November.

Crypto market retreats as inflation rises

According to the Bureau Labour of Statistics, the US CPI inflation data in September fell to 2.4%, higher than the expected 2.3%, while core CPI inflation increased from 3.2% to 3.3%. This marked the first time since March 2023 that the core CPI data has risen.

Following the CPI report, Bitcoin, along with several cryptocurrencies in the top 50, took a dive, with the top digital asset reaching a three-week low of $58,900. Ethereum (ETH) and Solana (SOL) also saw nearly a 2% decline in the past 24 hours, while the general crypto market capitalization saw a 3.3% loss.

Beyond the crypto market, stocks also saw a notable declines with the S&P 500 retreating by 0.7% from its all-time high of $5,791 in the past 24 hours.

Bitcoin Uptober could be at risk

According to FXStreet analyst Joshua Gibson, "Investors have been broadly hoping for US inflation figures to continue grinding down toward the Federal Reserve’s (Fed) 2% annual inflation target, but September’s CPI inflation print vexed markets, kicking the legs out from beneath broad-market risk appetite.”

The inflation data, combined with the declining unemployment rate reported by the BLS last week, has increased the odds of the Fed not cutting interest rates in November. This starkly contrasts market perception two weeks ago, when investors anticipated an additional 50-basis point rate cut in November. The Fed initially made its first rate cut in four years when it decided to reduce interest rates by 50 basis points on September 18.

With recent economic data not favoring a rate cut  and investors displaying signs of risk-off attitude, Bitcoin's potential Uptober move could be out of the cards for the first time in six years. Bitcoin has historically posted better returns in October and Q4 than in any other month or quarter, per Coinglass data. However, the outlook may change this time around as recent economic data doesn't seem to favor the trend.

Another key point is that the US Presidential elections come before the Fed meeting in November. Hence, the outcome could heavily impact the market and the Fed's next line of action.

Bitcoin could decline if S&P 500 sees a correction

Meanwhile, the S&P 500 hit a new all-time high on Wednesday while Bitcoin retraced. According to crypto analyst Ali Martinez, this is normal as Bitcoin historically hits an all-time high and retraces before the index makes a similar move.

An X user also highlighted that Bitcoin could see further declines as the index historically turns downward after seeing a new all-time high. This follows a pattern where the top digital asset has shown more correlation with the S&P 500 when the index declines from its all-time high as indicated in the chart in the X post above.