Firi Weekly: Markets Can't Decide on Inflation

Inflation Whiplash Rattles Crypto:
- Bitcoin rocketed to $124,300 following benign consumer price data, only to plunge when producer prices exceeded forecasts, stoking fears that tariffs could reignite inflation.
Blockchain Giants Emerge:
- Stripe and Circle both unveiled plans for independent Layer 1 blockchains, bypassing established networks like Ethereum and Solana to control their crypto infrastructure.
Norway's Stealth Bitcoin Play:
- The world's largest sovereign wealth fund increased its indirect Bitcoin holdings by 83%, now controlling 11,400 bitcoins through positions in Strategy and Metaplanet.
Japan Enters Stablecoin Race:
- The first yen-backed stablecoin, JPYC, targets an autumn launch as Asia seeks to capture share in the $270+ billion stablecoin market.

Last Week’s Big Three

Layer 1 Power Play: Two major corporations shook the crypto landscape with blockchain announcements last week. Fortune reported Monday that Stripe, the U.S. payment processing giant, is developing a Layer 1 blockchain called "Tempo" in partnership with venture capital firm Paradigm. A Layer 1 blockchain operates independently rather than building on existing infrastructure. The project remains in stealth mode. This project follows Stripe's $1.1 billion acquisition of the stablecoin startup Bridge in October of last year. The next day, Circle — issuer of the second-largest stablecoin, USDC — announced its own Layer 1 blockchain, called Arc.

The strategic decision by both companies to build independent blockchains rather than leveraging existing networks like Ethereum as Layer 2 solutions signals a shift in corporate crypto strategy. On the other hand, while both firms bring substantial distribution networks, achieving meaningful network effects and adoption will prove extremely challenging.

Norway's Bitcoin Exposure Surges: According to Standard Chartered, Norges Bank Investment Management—manager of the world’s largest sovereign wealth fund at $1.7 trillion—increased its indirect Bitcoin exposure by 83% in the second quarter. The fund now indirectly controls 11,400 bitcoins primarily through its stake in Strategy, the U.S. corporate Bitcoin treasury pioneer.

This reveals how institutional investors gain crypto exposure without direct holdings. The Norwegian fund's indirect position means it has a vested interest in Bitcoin's performance, even without owning the asset directly.

Japan Enters the Stablecoin Arena: Stablecoins represent one of crypto's most compelling growth stories this year, and Japan wants its share. According to Nikkei Asia, Japan's Financial Services Agency will approve the country's first yen-backed stablecoin. Tokyo-based fintech JPYC will issue the eponymous token, with approval expected this autumn. The stablecoin will maintain its peg through reserves of highly liquid assets including bank deposits and government bonds.

With U.S. dollar stablecoins dominating the market, the emergence of stablecoins pegged to other major currencies signals a notable diversification trend and could contribute to further growth for the stablecoin sector.

Behind the Charts

Chart 1: U.S. Consumer (CPI) Inflation Rate Year-over-Year

The U.S. Bureau of Labor Statistics (BLS), which tracks price changes across the economy, released July consumer inflation data Tuesday showing a 2.7% year-over-year increase versus market expectations of 2.8%. While the print came in roughly as expected, market positioning suggested traders had braced for worse—potentially driven by concerns that President Trump's tariff policies would accelerate inflation.

The relief rally that followed, including in digital assets, indicates these fears had yet to materialize in consumer prices. Bitcoin capitalized on this sentiment shift, reaching a new all-time high of $124,300 by Thursday.

Chart 2: U.S. Producer (PPI) Inflation Rate Year-over-Year

On the other hand, Thursday also brought a sharp reversal, triggered by the release of July producer price data from the BLS that day. The Producer Price Index (PPI), which measures inflation at the wholesale level before costs reach consumers, jumped to 3.3% from June's 2.4%. Markets had anticipated just 2.5%, making this a substantial negative surprise.

The unexpected surge reignited concerns that Trump's tariff policies will ultimately fuel inflation—a dynamic that typically appears in producer prices before flowing through to consumers. Additional pressure could emerge from the administration's immigration policies, which may constrain labor supply and drive wage inflation.

Following the worse-than-expected producer inflation print, risk assets—particularly digital assets—suffered as sentiment shifted in the second half of last week. Today, Bitcoin tumbled to as low as $114,700, while Ethereum fell to as low as $4,230 before recovering slightly.

A Number to Remember

$4.26 trillion

Despite closing the week lower following Thursday's producer inflation shock, the crypto market's total capitalization reached an all-time high of $4.26 trillion earlier in the week, powered by Tuesday's benign consumer inflation data.

On Our Radar

On our radar for the week ahead:

Inflation Reality Check: Last week's mixed inflation signals—encouraging consumer prices but concerning producer prices—leave markets searching for clarity. The negative producer inflation surprise currently dominates sentiment. Watch for any data or Federal Reserve (Fed), the U.S. central bank, commentary that clarifies the inflation trajectory.
Stablecoin Momentum Test: Stablecoin supply expanded by $5.91 billion, or 2.18%, last week, underscoring the sector’s rapid growth. Even as sentiment weakened in the week’s second half, continued stablecoin issuance may point to underlying market resilience despite headline volatility.
Washington Wildcard: Friday’s Alaska summit between Trump and Putin produced no breakthrough, leaving markets unimpressed. Now, Ukrainian President Zelenskyy is heading to Washington with European leaders for high-stakes talks with Trump. Any progress toward ending Russia’s invasion—or renewed friction reminiscent of their contentious February meeting—could drive market moves.

Mads Eberhardt18/08/2025

Should not be considered financial advice. Crypto may involve high risk.