US Inflation Surges to 3%, Crypto Market Plunges

US Inflation Surges to 3% as Crypto Market Shows Bearish Sentiment

The latest Consumer Price Index (CPI) data released on February 12, 2025, showed that US inflation hit 3% year-over-year, while core inflation reached 3.3%. This report exceeded market expectations and triggered a negative reaction from crypto investors. The overall crypto market cap fell by 5%, and Bitcoin slipped below $95,000.

This inflation rate marks the highest level since June 2024. Market players are concerned that the Federal Reserve (Fed) might tighten policy sooner than expected, leading them to favor safer assets over riskier ones like crypto. Short-term volatility in the crypto market is likely as traders adjust their positions.

Investors are closely watching the situation. Some may exit the crypto market for less volatile investments, which could lead to more price swings. Analysts expect the market to remain unsettled until the Fed offers clear signals on its policy direction.

Yesterday, Fed Chairman Jerome Powell testified before a Senate Banking Committee, stating that he is not in a hurry to cut interest rates. President Trump has pressed for bigger rate cuts to counter high inflation, but Powell has held firm on his stance. Market participants are now bracing for further adjustments as they await additional policy updates.

Analyst Mike McGlone suggests that a "reverse wealth effect" may be the key factor in alleviating inflation, with highly speculative crypto assets at the forefront. He notes that the US stock market added about $12 trillion of market capitalization in 2024, which is about 40% of GDP, and that the stock market cap is stretched to over 2x GDP – the most in about a century.

The crypto market was already reeling from Trump's earlier tariffs on Canada, Mexico, and China. The potential of a trade war and macroeconomic factors triggered a $2 billion liquidation in the crypto market on February 3. Some reports suggested that liquidations were more than $10 billion, exceeding the 2022 levels during the FTX collapse. However, the market has since rebounded to some extent after tariffs against Canada and Mexico were paused for a month. Today's inflation data might have a broader effect on the short-term bearish sentiment.

Since today's CPI