Inflation Rises Again: How It Affects Bitcoin and Crypto Outlook

The crypto market outlook is beginning to play out in a more cautious scenario. A new study from the Peterson Institute and Lazard raises significant concerns: inflation in the United States may continue to rise this year, which is vastly different from the expectations of Bitcoin bulls investing in faster price declines.

According to economists Adam Posen and Peter R. Orszag, inflation could reach over 4% in the coming months—a rising trend that will complicate monetary policy and risk asset plans such as cryptocurrency.

Where Do New Inflation Pressures Come From?

Researchers have identified several structural factors that will serve as powerful inflation drivers. First, tariffs imposed by the government will cause direct costs to importers, which will then be passed on to consumers through higher prices. This process does not happen immediately—there is a lag—but by the end of 2026, the total effect should be nearly complete.

Additionally, tighter labor markets and expected deportations may create labor shortages, especially in sectors relying on migrant workers. These factors will combine to push wages upward and generate demand-driven inflation.

The role of government spending should not be overlooked. The looming budget deficit—already exceeding 7% of GDP—along with looser financial conditions, continues to exert pressure on needs. All of these factors point in one direction: higher inflation.

“We believe these factors are stronger than the downward price pressures valued by the market,” say analysts. The narrative of productivity gains from AI and the ongoing decline in housing inflation—two points emphasized by bears—may not be enough to offset inflation pressures.

The Federal Reserve’s Dilemma in the Face of Rising Inflation

If inflation continues to rise, the Federal Reserve will find itself in a difficult position. Higher inflation will lead to a reduction in the aggressive rate cuts the market is expecting.

2025 ended with inflation readings falling to 2.7%—the lowest since 2020. This inspired investment banks to project 50-75 basis point rate reductions for this year. But crypto bulls are hoping for faster action, believing the disinflation trend will persist.

If that does not happen—if inflation rises further—the Federal Reserve will become more cautious. The “policy catch-up” scenario the market is trying to price in may not materialize, and instead, we may see a longer period of elevated interest rates. This is critical for crypto, as higher rates make risk-free assets like Treasury bonds more attractive.

Rising Bond Yields and Their Impact on the Crypto Market

Inflation pressures are directly reflected in bond markets. The 10-year US Treasury yield reached 4.31% last week—its highest in five months. This is a significant signal that investors are beginning to demand higher returns for safer assets.

For Bitcoin and other cryptocurrencies, this is not good news. As the risk-free rate rises—due to inflation and Federal Reserve holdings—investors will become more skeptical of more volatile assets. Bitcoin fell close to 4%, down to $80.46K last week, reflecting a broader risk-off sentiment in the market.

Global bond yields are also continuing to rise, with Japanese government bond yields reaching record highs. This creates an environment where traditional bonds become more competitive for investor capital.

The New Landscape for Crypto Bulls

The implication is clear: the crypto community’s reliance on a rapid disinflationary trend and aggressive rate cuts may need to be recalibrated. If inflation rises to 4% or higher, the Federal Reserve will be more patient with rate reductions.

This scenario shifts the risk-reward calculus. Higher real yields—discounted expected inflation—mean cash and government bonds become more attractive compared to cryptocurrencies. Bull markets based on monetary easing will need a different foundation.

For crypto investors, the key takeaway is the need to be more flexible with market outlooks. The disinflation narrative that dominated last year may no longer be the main driver for the coming quarters. Instead, inflation dynamics, monetary policy, and risk asset flows will become more critical to monitor.

The year is starting with more complications than expected—and inflation is at the center of the discussion.