Inflation eases; cut bets rise as crypto rules toughen

The macro narrative has shifted from “how long will inflation stay hot?” to “how soon can cuts start?” After a run of stubborn price pressures, softer readings have revived the idea that policy could ease later in the year, re-pricing everything from bonds to Bitcoin.

At the same time, crypto is entering a new phase: not just a speculative asset reacting to interest rates, but a financial sector facing tougher rules, more explicit tax enforcement, and heightened cyber-risk scrutiny. The result is a market pulled between tailwinds from easing inflation and winds from tightening oversight.

Inflation Eases: The Print That Reset Expectations

On May 16, 2024, U.S. inflation data delivered a “soft-but-not-cold” signal. April CPI rose 0.3% month over month and 3.4% year over year, broadly in line with forecasts, but importantly consistent with gradual cooling.

For investors, “in line” was enough. After months where upside surprises kept rate-cut hopes at bay, the April 2024 reading boosted confidence that the disinflation trend hadn’t broken, and that the Federal Reserve could be back in position to ease later in 2024.

That matters because markets don’t wait for official announcements. Even incremental improvements in CPI can change the probability-weighted path of rates, which then filters into equity valuations, credit spreads, the dollar, and risk assets such as cryptocurrencies.

Cut Bets Rise: How FedWatch Probabilities Moved Markets

Immediately after the softer inflation narrative took hold in May 2024, rate expectations snapped into place. CME FedWatch-implied probabilities for a September 2024 rate cut were cited around 75.3%, up sharply from roughly 44.9% just two days earlier.

This repricing illustrates a key point: investors trade the second derivative. It wasn’t just that inflation wasn’t accelerating; it was that the market regained confidence in the broader direction, reducing the perceived odds of “higher for longer.”

When cut probabilities rise, financial conditions can ease even before any central-bank action. Lower expected policy rates often weaken the dollar, lift longer-duration assets, and support “risk-on” positioning, conditions that crypto tends to benefit from, at least on the liquidity side of the equation.

Crypto’s Macro Sensitivity: When CPI Becomes a Bitcoin Catalyst

The crypto market has increasingly treated CPI days like earnings announcements. A of key inflation prints, positioning can become crowded, volatility spikes, and leverage gets tested.

One example came on May 13, 2025, when Bitcoin pulled back from a reported ~$105.7k high while traders braced for CPI. In that window, reports cited about ~$608M in crypto positions liquidated over 24 hours, roughly 80% of them long liquidations, highlighting how quickly optimism can unwind when macro uncertainty rises.

Then, on May 14, 2025, the macro news turned supportive: U.S. CPI for April 2025 was reported at 0.2% m/m versus a 0.3% forecast. Bitcoin traded around ~$103k on the day as rate-cut hopes improved, reinforcing the reflexive loop between inflation expectations, liquidity outlooks, and crypto pricing.

From Tailwinds to Whiplash: Liquidity Optimism Meets Real-World Risk

Even in a friendlier macro environment, crypto’s internal risks can overwhelm the narrative. The market may rally on lower inflation, but it can just as quickly re-price on idiosyncratic shocks: hacks, outages, governance failures, or regulatory surprises.

On May 16, 2025, Bitcoin was reported near ~$104k amid renewed “Fed rate-cut bets,” but the day also carried a sobering reminder: Coinbase warned of up to a ~$400M impact from a cyberattack. That juxtaposition, macro optimism beside operational risk, captures the asset class’s maturity challenge.

As crypto’s market cap and institutional footprint grow, cyber incidents matter more like they do in traditional finance. They affect confidence, prompt compliance reviews, and encourage regulators to push harder on custody standards, disclosures, and risk controls.

ETF Flows and the New Demand Channel for Bitcoin

Another structural shift has been the rise of spot bitcoin ETFs as a mainstream gateway. Instead of requiring direct exchange accounts or self-custody, investors can express a view through familiar brokerage rails, potentially amplifying flows when macro conditions turn supportive.

By July 16, 2025, Bitcoin was reported holding near ~$118k while U.S. spot bitcoin ETFs recorded their ninth straight day of net inflows, including about +$403M on the cited day. Sustained inflows like that can become a narrative of their own, supporting dips and reinforcing the idea of “institutionalization.”

But ETFs also tie Bitcoin closer to traditional market rhythms: rate expectations, equity volatility, and risk-parity style positioning. In practice, that can mean stronger rallies during easing cycles, and sharper drawdowns when the macro regime flips.

Crypto Rules Toughen: Banking Standards, Europe, and the Basel Debate

While markets cheered easing inflation, regulators continued to wrestle with how crypto should fit into the financial system. An October 31, 2025 report pointed to global regulators in the Basel Committee context reassessing stringent bank capital rules for crypto holdings, particularly as stablecoins inch toward mainstream use cases.

This is not a trivial technicality. Bank capital treatment can determine whether institutions can hold, custody, or make markets in crypto at scale. If standards are too strict, activity stays in less-regulated corners; if standards are too loose, policymakers worry about contagion risk.

Europe has also been framed as tightening crypto rules into late 2025, with commentary linking rule changes to a broader “Fed decision watch” backdrop and discussing Bitcoin around ~$91k in that context. The message: even if macro tailwinds return, compliance costs and constraints may rise in parallel.

Powell, the Fed, and the Policy Split: Rates vs. Regulation

The Federal Reserve’s stance illustrates an important split between monetary policy and regulatory posture. On June 3, 2025, Fed Chair Jerome Powell reiterated “the need for comprehensive crypto regulation” in a Washington speech, while signaling no rush to cut rates amid sticky inflation.

That combination can feel contradictory to markets: the hope of eventual easing supporting asset prices, while the push for tighter rules raises friction for the industry. Yet from a policymaker’s perspective, it is coherent, lower inflation may allow rate cuts later, but financial stability and consumer protection still demand guardrails.

Then, on June 28, 2025, the Federal Reserve removed “reputational risk” from bank assessments, a move seen as easing a constraint that had affected crypto firms’ banking access. Even here, nuance matters: easing one supervisory concept does not equate to a deregulatory wave; it may simply clarify how banks are evaluated while other compliance expectations remain high.

Tax Enforcement and Cyber Risk: The Hard Edge of “Rules Toughen”

Tougher rules are not only about capital standards or licensing regimes, they also arrive through enforcement and reporting. On June 28, 2025, CoinLedger reported a surge in IRS warning letters to crypto investors (+758%), framed as occurring a of new 1099-DA reporting rules set to take effect on Jan 1, 2026.

This type of enforcement pressure can change behavior more effectively than policy speeches. Higher perceived audit risk can reduce casual noncompliance, push users toward better accounting tools, and make “after-tax returns” a more central part of crypto investing decisions.

Meanwhile, cyber risk has increasingly been paired with the policy narrative. A December 10, 2025 newsletter-style piece explicitly linked an expected Fed cut story with tightening crypto rules and rising cyber risks, reflecting a market reality: as adoption expands, the attack surface grows, and regulators tend to respond by tightening expectations around controls, incident reporting, and third-party risk management.

Putting it all together, “inflation eases; cut bets rise as crypto rules toughen” is less a single storyline than a tug-of-war. Softer CPI prints in 2024 and 2025 helped revive rate-cut expectations, supporting liquidity-sensitive assets and helping explain why Bitcoin could trade around ~$103k, $104k in mid-May 2025 and later near ~$118k alongside sustained ETF inflows.

But crypto’s upside is now more conditional. Alongside the macro tailwind sits a growing rulebook: evolving bank capital debates, Europe’s tightening approach, IRS enforcement a of 1099-DA, and the ever-present reality of cyber incidents that can threaten both firms and market confidence. The next phase for crypto may hinge on whether it can translate easier inflation and potential cuts into durable adoption, while proving it can operate safely under tougher rules.