Cryptocurrencies Bitcoin and Ethereum witness a surge as the rate of US inflation moderates down to 2.7% in July.
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In a recent development, the U.S. Consumer Price Index (CPI) for August 2025 came in at 2.7%, slightly below the forecasted 2.8%. This moderately low inflation rate has increased the odds of a Federal Reserve (Fed) rate cut in September to about 94%, according to traders.
This news has been well-received by Bitcoin, Ethereum, and Solana bulls. Bitcoin's price has surged, trading above $120,000 and aiming for breakout levels. Ethereum has pushed to new highs above $4,400, while Solana is attempting a breakout toward $200.
The correlation between Bitcoin and traditional US equities has also tightened, meaning that macroeconomic factors affecting stocks—like CPI and Fed policy—now influence crypto prices as well. The market views eased inflation as a signal for potential monetary easing, promoting a "risk-on" sentiment that benefits cryptocurrencies.
However, if inflation were to spike unexpectedly, tightening policies by the Fed would reduce liquidity, making crypto investments less attractive and potentially causing price declines.
Fed Governor Michelle Bowman argued that the effect of tariffs on consumer price would be temporary. Nonetheless, the Fed's reluctance to lower its benchmark rate this year is due to concerns about U.S. President Donald Trump's tariffs reigniting price pressures for consumers.
Criticism has been directed at Fed Chair Jerome Powell for his handling of the situation. Many U.S. companies have announced price increases, and more are on the way, according to Cato Institute's General Economics Vice President Scott Lincicome.
In a speech on Friday, Fed Governor Michelle Bowman stated that the central bank tries to bring inflation back down to its 2% target. Despite this, the odds of a rate cut in September have fallen slightly from an 86% chance on Monday, according to CME FedWatch.
Experts think that Trump's tariffs haven't had a significant impact on inflation due to ongoing tariff exemptions with some countries and months of stockpiling goods by U.S. companies.
In summary, the U.S. CPI data is a key macro catalyst for cryptocurrencies, as it signals inflation trends impacting Fed policy. Lower or steady CPI increases the odds of a Fed rate cut, which tends to boost prices of Bitcoin, Ethereum, and Solana by encouraging risk-taking. Conversely, higher CPI can delay rate cuts, tighten liquidity, and negatively affect crypto prices. The relationship between traditional economic indicators like the CPI and the dynamics of the emerging crypto market is becoming increasingly evident.
- The crypto market, including Bitcoin and Ethereum, has responded positively to the recent moderately low CPI figure of 2.7%.
- The correlation between Bitcoin and traditional US equities has strengthened, implying that macroeconomic factors like CPI and Fed policy now influence crypto prices.
- While a rate cut by the Fed increases the odds of a boost in Bitcoin, Ethereum, and Solana prices, unexpectedly high inflation could reduce liquidity and lead to price declines in the crypto market.
- A rate cut by the Fed, driven by eased inflation, promotes a "risk-on" sentiment that benefits various cryptocurrencies like Bitcoin, Ethereum, and Solana.
- Dapp developers and investors might find investigating Initial Coin Offerings (ICOs) in decentralized finance (DeFi) sectors profitable during periods of low liquidity and relaxed monetary conditions.
- As the relationship between traditional economic indicators and the crypto market is now more apparent, monitoring CPI figures and Fed policy decisions can help informed crypto investors make strategic decisions in their portfolio investing.
