Dogecoin Leads Crypto Sell-Off Amid Bitcoin Traders’ Focus on the Dollar

Crypto Markets Retreat Ahead of U.S. CPI Data, Traders Watch for Dollar Weakness

Crypto markets slid by 3% in the past 24 hours as traders await the release of the U.S. consumer price index (CPI) data on Wednesday. Some anticipate a potential weakening of the U.S. dollar, which could lift risk assets, including cryptocurrencies, and create new opportunities for investors expecting higher prices.

Bitcoin (BTC) dropped 1.3%, with other major cryptocurrencies such as Ether (ETH), Solana (SOL), Cardano (ADA), and XRP losing up to 3%. Dogecoin (DOGE) took the biggest hit, falling 4.5%, while BNB Chain’s BNB saw a 1% increase as interest in the platform’s ecosystem gained momentum. The CoinDesk 20 (CD20) index, which tracks the largest tokens by market cap, ended the day down by 2.5%.

The CPI report, which tracks changes in the prices of consumer goods and services, is a closely watched indicator in the crypto market. Investors often view Bitcoin and other digital assets as hedges against inflation. With inflation concerns still in focus, the market is keenly anticipating any signs that the Federal Reserve may lower interest rates to address rising costs. Projections for the January CPI suggest a 0.3% increase in the all-items index, with an annual inflation rate of 2.9%.

If the data points to inflation pressures easing, some traders expect a reversal in the U.S. dollar, potentially pushing risk assets, including cryptocurrencies, higher. This scenario could present an attractive entry point for crypto investors positioning for a price surge.

QCP Capital, based in Singapore, mentioned in a recent Telegram broadcast that the market has likely already priced in negative news for the dollar, leaving it vulnerable to downside risk. “Any positive news could trigger a large-scale unwinding of USD positions, potentially driving risk assets higher. The CPI release tonight could serve as the spark for a sharp drop in the U.S. Dollar Index,” they stated.

However, QCP noted that Bitcoin’s underperformance relative to stocks and gold suggests caution within the crypto space. Liquidity remains low across many new listings, and the fallout from last week’s $1 billion liquidation event is still affecting sentiment.

Given the market uncertainty, QCP emphasized that hedging with “downside protection” — options that pay out as prices fall — remains the most prudent approach in the current environment.