By Omkar Godbole (All times ET unless indicated otherwise)

Two years ago, I posted on X that the new normal for U.S. inflation in the post-COVID world is much higher than the Federal Reserve’s 2% target. The market’s reaction to Tuesday’s hotter-than-expected U.S. core CPI report suggests a growing number of investors now share that view.

The data for July showed that annualized core CPI topped the 3% mark for the first time, primarily due to the effects of President Trump's tariffs. The Fed has only once cut interest rates when core inflation was above 3%.

Even so, bitcoin (BTC) rose by over 1% on Wednesday, and ether, often envisaged as an internet bond, jumped by over 8%. U.S. stocks also rallied as traders seemingly disregarded the inflation number and continued to price in a September rate cut.

This dynamic suggests that the 2% inflation target is likely dead . The U.S. Treasury Secretary said Tuesday that the Fed should consider a 50 basis-point cut in September.

This scenario is bullish for assets with inflation-hedge appeal, such as bitcoin and gold, as it implies that central banks are willing to overlook higher inflation to cut rates.

BTC recently traded near $120,000, while gold remained lackluster between $3,300 and $3,400. Several alternative cryptocurrencies posted gains in excess of 10% as retail investors flocked to cheaper coins.

"Bitcoin's current rally reveals a structural shift in crypto market participation that could define this cycle," Will K, CEO of decentralized trading platform VOOI and Co-Founder of Symbiosis.Finance, told CoinDesk. "While institutions gained exposure through ETFs, retail traders are quietly returning to DeFi platforms that have removed previous barriers to entry."

This dual-sided crypto adoption has changed the market composition, where institutional capital flows through regulated products and sophisticated retail re-engages through evolved decentralized infrastructure.

"Traders are no longer choosing between traditional and decentralized markets, they're using both simultaneously," K said.

Speaking of adoption, USDC issuer Circle unveiled its stablecoin-focused layer 1 blockchain, Arc. The blockchain focus on financial transactions: payments, currency exchange and capital markets. Nasdaq-listed ALT5 Sigma completed a $1.5 billion registered direct offering and private placement led by World Liberty Financial.

In traditional markets, the MOVE index, which measures implied volatility in U.S. Treasury notes, fell to its lowest level since January 2022. The continued decline supports easing of financial conditions and increased risk-taking in financial markets. Stay alert!