U.S. Inflation Resurgence Threatens Crypto Investors' 2026 Rally Bet

A new resurgence in U.S. inflation could shatter the optimism that has been building around bitcoin and digital assets. Researchers from the Peterson Institute and Lazard are signaling that consumer prices may accelerate beyond the 4% mark this year, defying the market consensus that has long underpinned the crypto bull case.

The inflation resurgence stems from a confluence of structural factors that appear likely to override the disinflationary tailwinds from productivity gains and cooling housing costs. According to Adam Posen, president of the Peterson Institute for International Economics, and Peter R. Orszag, CEO of Lazard, the combination of tariff pressures, a tightening labor market, potential mass deportations, ballooning fiscal deficits, and accommodative financial conditions could overwhelm the price-moderating effects of artificial intelligence-driven productivity improvements.

Why Inflation Could Resurge Faster Than Expected

The resurgence mechanism is deceptively straightforward. Trump administration tariffs on imported goods will gradually feed into consumer prices over the coming months. Importers typically absorb initial tariff costs, then pass them downstream to end consumers with a lag of several quarters. “By mid-2026, the delayed pass-through should be substantially complete,” the researchers noted, potentially adding 50 basis points to headline inflation by that point.

Labor market tightness compounds the problem. With fewer migrant workers available due to potential deportations, sectors reliant on immigrant labor face wage pressures that cascade through the economy. Government spending adds another layer: fiscal deficits could exceed 7% of GDP, injecting demand into an already-constrained system while inflation expectations risk becoming unanchored from their current levels.

“We believe these factors outweigh the downward-pressure trends that consensus has been fixated on—namely, the ongoing decline in housing inflation and gains in productivity,” Posen and Orszag wrote, challenging the prevailing narrative that has animated much of the risk-asset rally.

Market Signals Flashing Red

The inflation resurgence narrative is already reshaping financial markets in real-time. The 10-year Treasury yield surged to a five-month high of 4.31% early this week as bond markets reprice expectations for Federal Reserve rate cuts. Several investment banks have penciled in 50-75 basis points of cuts for 2026, but crypto investors had been betting on even more aggressive easing—a bet now in jeopardy.

Bitcoin has already felt the pressure, declining to $84.46K as of late January 2026. The decline reflects a broader repositioning away from risk assets toward traditional safe havens amid rising real rates.

The Policy Dilemma

The core policy risk centers on the Fed potentially moving too cautiously after structural disinflation from AI productivity actually takes hold, according to analysts at Bitunix. This “policy catch-up” scenario would force a more disruptive economic adjustment down the road. Yet in the near term, mounting inflation signals suggest the Fed may adopt a wait-and-see approach rather than the aggressive rate-cutting cycle that crypto bulls anticipated.

Diverging Asset Flows

The inflation resurgence is creating visible fractures in how investors allocate capital. Gold has surged past $5,500 per ounce on safe-haven demand, with notional gains exceeding $1.6 trillion in a single trading day. Sentiment indicators such as JM Bullion’s Gold Fear & Greed Index show extreme bullishness in precious metals, contrasting sharply with crypto sentiment gauges that remain mired in fear.

Bitcoin, by comparison, is behaving like a high-beta risk asset rather than inflation protection. While the “hard assets” narrative suggests crypto should rally alongside gold and silver, the market is instead favoring physical precious metals over digital tokens—a troubling divergence for bulls who had positioned Bitcoin as a store-of-value alternative.

What It Means for Crypto in 2026

The inflation resurgence throws a wrench into many of the assumptions undergirding this year’s crypto market. If tariffs, labor constraints, and fiscal pressures do combine to push inflation above consensus estimates, the Fed’s room to cut rates aggressively narrows. That dynamic would keep real interest rates elevated longer, weighing on speculative assets while favoring yield-bearing traditional instruments.

For bitcoin bulls who had staked their 2026 thesis on disinflation and rapid monetary easing, this inflation resurgence represents a material shift in the investment landscape—one that markets are only beginning to price in.