​After peaking inflation in the US in 2021 and 2022, inflation decreased in 2023 to below 4% in the summer and steadily hovered between 3% and 4% until summer 2024. At the time, US inflation fell below 3% for the time in years and followed an optimistic trend to as low as 2.4%, before inflation started to pick up again October 2024. Since then, inflation steadily rose to 2.9% in December 2024. While the development overall is promising, the most recent trend is worrying, as interest rates remain at high levels.
To combat inflation, the Federal Reserve increased interest rates aggressively to as high as 5.25% - 5.5% until late 2023. Initially, cuts were expected by spring 2024. Eventually, the Federal Reserve started cutting interest rates aggressively in autumn 2024. By the end of 2024, US interest rates are between 4.25% and 4.5%. Originally, cuts in the same magnitudes were expected for 2025. These expectations were crushed by Powell in the Fed’s December meeting, in which he suggested that there will only be two 25bps rates cuts throughout 2025. With inflation expected to remain between 2% and 3%, the US labour market will mark an important decision maker for the Federal Reserve for their short-term interest rate policy. Additionally, Trump is another unknown, as he is a strong advocate for lowering rates sooner rather than later. However, while he can influence a lot, it is unlikely that his view will have an impact on the monetary policy, especially as it is virtually impossible for him to replace Powell as Chair of the Federal Reserve. Powell also proved in their meeting at the end of January 2025 that he is not swayed that easily, when the Fed decided to hold interest rates at current level. Figure 1 shows the development of inflation and interest rates in the US, the Euro zone, and the UK from 2023 to January 2025.

​The year 2025 did not start well for financial markets. With a positive outlook for the first time in the post-Covid era, optimism was justifiably high. While only two weeks do not provide much information for the whole of 2025, they do show a relatively low level of confidence among market participants. The outlook for 2025 is based on improving market conditions in most areas. Reasonable inflation and still historically strong labour markets provide a solid foundation. The change of leadership in the US is also expected to improve the business environment. In addition to government support, central banks will cut interest rates, providing further support to businesses. Geopolitical tensions, which significantly increased volatility last year, are also expected to improve. It is important to note that these are only a few examples that point to a strong 2025.
This is a stark comparison to the outlooks of previous years. Since Covid-19, almost every year has seen outlooks with almost apocalyptic consequences, especially around potential recessions. Perhaps it is precisely this overall positive outlook that makes the negative news shine more brightly. In this sense, any disappointment could send markets tumbling. Part of the recent decline in markets was triggered by the Fed's latest rate cut, in which the Fed stated that they would cut rates less than initially expected. Another factor was higher than expected US inflation data. This led to a general sell-off in risky assets, such as cryptocurrencies and equities, as shown in Figure 1. The impact on the performance of Bitcoin and the S&P500 has so far been limited due to a slight correction in mid to late December.

Cryptocurrencies started phenomenally in the year 2024. To date, Bitcoin (BTC) is up almost 50% in 2024 after soaring around 160% in 2023 already. On 28th February 2024, BTC managed to surpass the $60k mark and peaked at nearly $64k. With the Halving on the horizon, BTC will likely surpass its previous record high of $68k set in November 2021. Ethereum (ETH) and other altcoins are following the price development of BTC after the most recent hype around the BTC ETF approval showed a relatively small impact on other coins. ETH is also up almost 50% in 2024, at the time of writing. ETH is currently trading at $3,385, levels last seen in early 2022. While BTC is already relatively close to its record high from 2021, ETH is still quite far away from its record high of $4.8k from November 2021. The growth of Solana (SOL) has slowed in 2024, gaining only 16%. Nonetheless, the current level of $118 was last seen in early 2022, when the token crashed substantially amid the general crypto crash and reliability issues of the network. Although the growth over the past two months has not been exceptional, this is more than compensated by the 10x return in 2023. While BTC and ETH show a tendency for a new record level soon, SOL still needs to grow substantially to overtake its previous record high of $260 in November 2021. Figure 1 shows the price development of the three coins from the end of 2021 to February 2024. The most recent surge in prices also resulted in the market capitalization of cryptocurrencies rising above $2tn for the first time since early 2022. Currently, the market cap of the industry lies at $2.33tn.
Cryptocurrencies started phenomenally in the year 2024. To date, Bitcoin (BTC) is up almost 50% in 2024 after soaring around 160% in 2023 already. On 28th February 2024, BTC managed to surpass the $60k mark and peaked at nearly $64k. With the Halving on the horizon, BTC will likely surpass its previous record high of $68k set in November 2021. Ethereum (ETH) and other altcoins are following the price development of BTC after the most recent hype around the BTC ETF approval showed a relatively small impact on other coins. ETH is also up almost 50% in 2024, at the time of writing. ETH is currently trading at $3,385, levels last seen in early 2022. While BTC is already relatively close to its record high from 2021, ETH is still quite far away from its record high of $4.8k from November 2021. The growth of Solana (SOL) has slowed in 2024, gaining only 16%. Nonetheless, the current level of $118 was last seen in early 2022, when the token crashed substantially amid the general crypto crash and reliability issues of the network. Although the growth over the past two months has not been exceptional, this is more than compensated by the 10x return in 2023. While BTC and ETH show a tendency for a new record level soon, SOL still needs to grow substantially to overtake its previous record high of $260 in November 2021. Figure 1 shows the price development of the three coins from the end of 2021 to February 2024. The most recent surge in prices also resulted in the market capitalization of cryptocurrencies rising above $2tn for the first time since early 2022. Currently, the market cap of the industry lies at $2.33tn. 

2023 followed the core theme of 2022 with a key focus on inflation and interest rates. At the beginning of 2023, inflation was a huge concern, due to its high level. In the US, inflation was at 6.5% and already declined substantially from its peak in June 2022 at 9.1%. This trend continued in 2023 until it reached its bottom in June 2023 at 3%. Since then, US inflation remained steady between 3% and 4%. The EU and the UK saw a very similar development of inflation throughout 2022. Their respective inflation started at around 5.5% in January 2022 and rose to 10.5% by the end of 2022. As soon as 2023 started, inflation in the EU started to decline and eventually declined to as low as 3.1% in November 2023. Despite this promising development, inflation began to increase again to 3.4% in December 2023. While the UK’s inflation development was almost equivalent to the EU’s in 2022, this changed in 2023. Inflation in the UK remained above 10% until April 2023, at which point inflation was at 10% or higher for almost an entire year. Nonetheless, UK inflation also came down later in 2023 and reached the 4% mark at the end of December 2023. Based on the overall relatively similar development of inflation around the world, it is likely that inflation will stay at elevated levels in the short term. Another key reason for relatively stale inflation is that central banks stopped hiking their interest rate for a while now in 2023. Figure 1 summarizes the development of inflation in the US, EU, and the UK.
With the soaring inflation in 2021 and afterward, central banks had to react. Financial markets enjoyed rates close to zero, if not negative, for a long time. As a response, central banks started raising their interest rates. The Bank of England was the first to raise its interest rates in December 2021. The Fed followed in March 2022 and hiked its rate in every meeting and by a higher amount on average than the BoE or the ECB. The BoE did so too, but did smaller hikes on average. The ECB followed in June 2022, but they did not hike at every meeting. At the start of 2023, the interest rate in the US was already at 4.25% compared to 3.5% in the UK and 2.5% in the EU. Consequentially, the ECB hiked more in 2023 but did not reach the same heights as in the US or UK, which are currently at 5.25%, while the ECB’s interest rate remains at 4.5%. With interest rates now higher than inflation rates in each of those economies, most market participants expect interest rate cuts in 2024, especially due to an elevated possibility of a recession ahead.