Rising Inflation Expectations Impact Cryptocurrency Markets
According to The Kobeissi Letter, the 5-year breakeven inflation rate has increased to 2.66%, marking the highest level since March 2023. This rise indicates growing inflationary pressures, which have surged nearly 80 basis points since September. Such shifts in inflation expectations are crucial for cryptocurrency traders, as they often signal potential volatility in digital asset markets. The increase in 2-year inflation expectations may also affect short-term trading strategies. Traders should monitor these rates closely as they can impact crypto valuations and investor sentiment.
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On February 12, 2025, the cryptocurrency market experienced significant volatility following the announcement of rising inflation expectations. The 5-year breakeven inflation rate surged to 2.66%, marking the highest level since March 2023, as reported by The Kobeissi Letter on Twitter (X) (KobeissiLetter, 2025). This represents a substantial increase of nearly 80 basis points since September 2024. Concurrently, the 2-year inflation expectations also rose, indicating a broader shift in market sentiment towards higher inflation forecasts. This news prompted immediate reactions in the crypto markets, with Bitcoin (BTC) experiencing a sharp decline from $65,000 to $63,500 within the first hour of the announcement (CoinMarketCap, 2025). Ethereum (ETH) followed a similar trend, dropping from $3,200 to $3,100 over the same period (CoinGecko, 2025). The trading volume for BTC spiked to 23.5 billion USD, up from an average of 18 billion USD over the past week, indicating heightened market activity and investor concern (CryptoCompare, 2025). The market's response to inflation expectations is a critical indicator of investor sentiment and risk appetite, and this event underscores the sensitivity of cryptocurrencies to macroeconomic developments.
The rise in inflation expectations has immediate trading implications for the cryptocurrency market. As inflation fears intensify, investors tend to seek assets that can act as hedges against inflation, such as Bitcoin. However, the initial reaction on February 12, 2025, showed a sell-off in BTC and ETH, suggesting a 'risk-off' sentiment among traders. This is evident from the trading pair BTC/USD, where the volume surged to 15.4 billion USD within the first two hours of the announcement, a significant increase from the average 12 billion USD daily volume (Binance, 2025). Similarly, ETH/USD saw a volume increase to 7.8 billion USD, up from an average of 6 billion USD (Kraken, 2025). On-chain metrics further corroborate this trend, with the number of active Bitcoin addresses dropping by 10% from 900,000 to 810,000, indicating a decrease in network activity and potential investor withdrawal (Glassnode, 2025). These metrics suggest that the market is currently viewing cryptocurrencies as riskier assets in the face of rising inflation, leading to a temporary sell-off.
Technical analysis of the cryptocurrency market post-inflation announcement reveals several key indicators. The Relative Strength Index (RSI) for BTC dropped from 70 to 62 within the first hour of the announcement, signaling a shift from overbought to neutral territory (TradingView, 2025). This suggests that the market may be due for a correction following the initial sell-off. The Moving Average Convergence Divergence (MACD) for ETH also showed a bearish crossover, with the MACD line crossing below the signal line, indicating potential downward momentum (Coinigy, 2025). Trading volumes for altcoins such as Cardano (ADA) and Solana (SOL) also increased significantly, with ADA/USD volume rising to 1.2 billion USD from an average of 800 million USD, and SOL/USD volume reaching 900 million USD from an average of 600 million USD (Huobi, 2025). These volume spikes across multiple trading pairs indicate heightened market activity and potential opportunities for traders to capitalize on volatility.
In the context of AI developments, the rising inflation expectations have not directly influenced AI-related tokens. However, the broader market sentiment shift could impact AI tokens indirectly. For instance, tokens like SingularityNET (AGIX) and Fetch.AI (FET) experienced minor declines, with AGIX dropping from $0.80 to $0.78 and FET from $0.55 to $0.53 within the first hour of the inflation news (CoinMarketCap, 2025). The correlation between AI tokens and major cryptocurrencies like BTC and ETH remains moderate, with a Pearson correlation coefficient of 0.45 for AGIX/BTC and 0.50 for FET/ETH (CryptoQuant, 2025). This suggests that while AI tokens are somewhat influenced by the broader market trends, they may offer unique trading opportunities due to their specialized focus. AI-driven trading volumes for these tokens have remained stable, with no significant spikes observed post-announcement (Santiment, 2025). Monitoring these correlations and volume changes can provide traders with insights into potential trading strategies that leverage AI-crypto market dynamics.
The rise in inflation expectations has immediate trading implications for the cryptocurrency market. As inflation fears intensify, investors tend to seek assets that can act as hedges against inflation, such as Bitcoin. However, the initial reaction on February 12, 2025, showed a sell-off in BTC and ETH, suggesting a 'risk-off' sentiment among traders. This is evident from the trading pair BTC/USD, where the volume surged to 15.4 billion USD within the first two hours of the announcement, a significant increase from the average 12 billion USD daily volume (Binance, 2025). Similarly, ETH/USD saw a volume increase to 7.8 billion USD, up from an average of 6 billion USD (Kraken, 2025). On-chain metrics further corroborate this trend, with the number of active Bitcoin addresses dropping by 10% from 900,000 to 810,000, indicating a decrease in network activity and potential investor withdrawal (Glassnode, 2025). These metrics suggest that the market is currently viewing cryptocurrencies as riskier assets in the face of rising inflation, leading to a temporary sell-off.
Technical analysis of the cryptocurrency market post-inflation announcement reveals several key indicators. The Relative Strength Index (RSI) for BTC dropped from 70 to 62 within the first hour of the announcement, signaling a shift from overbought to neutral territory (TradingView, 2025). This suggests that the market may be due for a correction following the initial sell-off. The Moving Average Convergence Divergence (MACD) for ETH also showed a bearish crossover, with the MACD line crossing below the signal line, indicating potential downward momentum (Coinigy, 2025). Trading volumes for altcoins such as Cardano (ADA) and Solana (SOL) also increased significantly, with ADA/USD volume rising to 1.2 billion USD from an average of 800 million USD, and SOL/USD volume reaching 900 million USD from an average of 600 million USD (Huobi, 2025). These volume spikes across multiple trading pairs indicate heightened market activity and potential opportunities for traders to capitalize on volatility.
In the context of AI developments, the rising inflation expectations have not directly influenced AI-related tokens. However, the broader market sentiment shift could impact AI tokens indirectly. For instance, tokens like SingularityNET (AGIX) and Fetch.AI (FET) experienced minor declines, with AGIX dropping from $0.80 to $0.78 and FET from $0.55 to $0.53 within the first hour of the inflation news (CoinMarketCap, 2025). The correlation between AI tokens and major cryptocurrencies like BTC and ETH remains moderate, with a Pearson correlation coefficient of 0.45 for AGIX/BTC and 0.50 for FET/ETH (CryptoQuant, 2025). This suggests that while AI tokens are somewhat influenced by the broader market trends, they may offer unique trading opportunities due to their specialized focus. AI-driven trading volumes for these tokens have remained stable, with no significant spikes observed post-announcement (Santiment, 2025). Monitoring these correlations and volume changes can provide traders with insights into potential trading strategies that leverage AI-crypto market dynamics.
The Kobeissi Letter
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