Bitcoin Slides to $68,500 as Inflation Pushes Investors Toward Yield

Bitcoin fell more than 4% to $68,500 on Friday, erasing three months of gains and reviving the question of whether its bear market ever truly ended. The drop coincided with the weakest on-chain demand reading since December 2023, according to analytics provider CryptoQuant, and a return to net selling by Bitcoin exchange-truned funds — ETFs flipped to net sellers again this week, the firm's data showed.

The pullback isn't confined to Bitcoin. Tether's USDT, the largest dollar-pegged stablecoin, has shed $7.7 billion in total value over the past two months, per CryptoQuant — a signal that cash is draining out of crypto markets rather than rotating within them.

Why is inflation the culprit this time?

Tuesday's Consumer Price Index report showed prices rose 0.4% in October, above economists' forecasts, and the increase ran hotter than expected even with food and energy stripped out. Traders now overwhelmingly expect the Federal Reserve to raise interest rates by a quarter percentage point in December, with some positioning for a larger hike.

That repricing hits non-yielding assets hardest. "Because these are non-yielding assets, and we expect inflation to rise… people are chucking stuff like gold and Bitcoin to find… government bonds that are going up, providing you [with] income," Chris Beauchamp, chief market analyst at IG Group, told Fortune.

Gold is telling the same story. It traded near $3,900 an ounce on Friday, down from a January peak of roughly $5,600, according to Trading Economics — off about 5% over the past month and nearly 5% year over year.

How did Bitcoin get here?

The path to $68,500 traces a volatile year. Bitcoin hit $58,000 in June, then rallied after the U.S. Treasury announced plans in August to expand its bond buybacks — a move that carried the price to $86,000 by September. It has slid since.

Politics added pressure. The midterm elections handed Democrats control of Congress, a setback for a crypto industry that has relied on Republican allies to advance favorable legislation. Bitcoin initially shrugged off the result, largely because markets had priced it in. "The midterm results weren't a surprise, and they don't change the regulatory interpretations as they stand today… We at least have some regulatory stability for two years," said Stephen Coltman, head of macro at crypto asset manager 21Shares.

What role is the AI boom playing?

Analysts point to a second, less obvious drag: artificial intelligence is competing directly for the capital that might otherwise flow into Bitcoin and gold. Heavy borrowing and spending on AI have created what 21Shares calls an "AI black hole," pulling investment dollars toward the sector.

Bitcoin sits in an awkward position. It remains "joined at the hip" with tech stocks, in Beauchamp's words — competing for allocations when AI enthusiasm runs high, yet vulnerable to selloffs when that enthusiasm fades.

The AI boom also muddies the rate outlook. In Coltman's view, AI spending is propping up an otherwise weak economy, giving the Fed room to keep fighting inflation with higher rates. If borrowing costs eventually force AI companies to cut spending, the resulting slowdown could push the Fed to change course — and give Bitcoin some breathing room.

For now, the market's attention is fixed on the Fed's December meeting, where a quarter-point hike is the base case and anything larger would deepen the pressure on non-yielding assets.