Bitcoin Falls to $78.4K as Fed’s Warsh Downplays Soft Inflation Data

Bitcoin slipped to around $78,400 after Federal Reserve Chair Kevin Warsh played down recent softer inflation readings, pushing investors to reconsider expectations for U.S. monetary policy.

Bitcoin was trading at about $77,765 on Aug. 31, down roughly 0.6% over the past week. The cryptocurrency has pulled back from a recent high of $81,455 after Warsh’s remarks at the Jackson Hole economic symposium put renewed focus on persistent inflation and the possibility of tighter policy.

Warsh reaffirmed the Fed’s commitment to its 2% inflation target, arguing that recent weakness in CPI and PCE data does not yet demonstrate a meaningful improvement in underlying inflation.

Fed data showed annual personal consumption expenditures inflation at 3.7%, while the six-month annualized rate was 4.1%. Both remain well above the central bank’s target.

The message was enough to unsettle markets that had been expecting softer inflation to give the Fed more room to ease policy.

Fed Chair’s Speech

Rate-hike expectations jump

Markets quickly raised expectations for a September rate hike. CME FedWatch data showed the probability rising from 35.4% to 57% after Warsh’s speech. The Fed is scheduled to meet on Sept. 15-16.

Warsh did not directly signal what policymakers would do at the meeting. Instead, he questioned the value of regular forward guidance, arguing that excessive signaling can create a feedback loop between the central bank and financial markets.

That could leave investors more dependent on incoming economic data. Inflation figures, employment reports and comments from individual Fed officials may carry greater weight as markets try to determine the next policy move.

For Bitcoin, that creates an increasingly challenging environment.

Higher interest rates generally make yield-producing assets such as government bonds more attractive relative to Bitcoin, which does not generate regular cash flows. Higher Treasury yields can also reduce appetite for riskier investments, while a stronger U.S. dollar tends to add further pressure to dollar-priced cryptocurrencies.

The latest market decline also triggered significant derivatives liquidations. More than $384 million in crypto positions were liquidated over the previous 24 hours, including about $310 million in long positions.

Ethereum fell around 2.1% to $2,400, while several other major cryptocurrencies also moved lower.

Bitcoin (BTC) Price Performance on Aug. 31, 2026 (Source: CoinMarketCap)

ETF demand remains strong

The pullback has not, however, erased signs of strong institutional demand.

U.S. spot Bitcoin ETFs attracted approximately $2.8 billion across eight consecutive trading sessions through Aug. 26, according to the figures provided. BlackRock’s IBIT accounted for about $2.02 billion of that total.

The inflows are notable because they show that longer-term demand for Bitcoin remains intact even as short-term traders react to changes in monetary policy.

Bitcoin had climbed from roughly $62,000 to around $80,000 during August, helped by ETF demand as well as more favorable conditions in U.S. Treasury markets.

The U.S. Treasury has also announced plans to at least double the maximum size of certain long-term Treasury buybacks. From Sept. 9, the maximum size of an individual operation involving securities maturing in 10 to 30 years will increase from $2 billion to at least $4 billion.

The Treasury said the move is intended to support liquidity in the long-term government debt market. Falling Treasury yields and a weaker dollar following the announcement helped provide support for risk assets, including Bitcoin.

Warsh’s comments have now shifted the market’s attention back toward inflation.

Crypto’s connection to traditional finance grows

Jackson Hole also highlighted how closely digital assets are becoming connected to the traditional financial system.

Stablecoins and tokenized assets were among the subjects discussed by central banks, the IMF, the BIS and financial researchers. Dollar-backed stablecoins are increasingly viewed as a potential way to expand global access to dollar-denominated assets and could contribute to demand for U.S. Treasury securities.

But that growth could create new financial risks. The BIS has warned that stablecoins could pull deposits away from traditional banks, potentially increasing banks’ funding costs. Large-scale redemptions could also force issuers to sell Treasury securities or withdraw bank deposits, potentially transmitting stress into wider financial markets.

Blockchain technology is also attracting greater attention for tokenized securities, settlement, collateral management and cross-border payments. However, greater acceptance of blockchain infrastructure does not necessarily mean public cryptocurrencies will dominate these applications.

For Bitcoin investors, the immediate issue remains the Fed.

The cryptocurrency is now caught between continued institutional buying and a less supportive macroeconomic backdrop. Strong ETF inflows could provide a floor for prices, but a sustained rise in Treasury yields or the dollar could make another leg higher more difficult.

Key data ahead

The next major catalyst will be incoming U.S. economic data and further comments from Fed officials ahead of the September meeting.

If inflation continues to cool convincingly, markets could once again increase bets on easier monetary policy, potentially supporting Bitcoin. If price pressures remain elevated, expectations for higher rates could continue to weigh on the cryptocurrency.

Bitcoin’s fall toward $78,000 therefore represents more than a technical pullback. It reflects a broader reassessment of how quickly the Fed can move away from restrictive policy.

After a strong August rally, Bitcoin now faces a test of whether institutional demand can withstand renewed pressure from interest rates, Treasury yields and the dollar. The $78,000 level will remain closely watched as investors assess whether the latest decline is a temporary correction or the start of a deeper adjustment in the cryptocurrency market.