Crypto Markets Drop 3% as Traders Await CPI Report, Potential Dollar Decline
Crypto markets slipped 3% in the past 24 hours as traders braced for the upcoming U.S. Consumer Price Index (CPI) report, expected later Wednesday. Some analysts anticipate a potential decline in the dollar, which could boost risk assets and offer an opportunity for crypto investors looking to capitalize on higher prices.
Bitcoin (BTC) dipped 1.3%, while major altcoins such as Ethereum (ETH), Solana (SOL), Cardano (ADA), and XRP lost up to 3%. Among the biggest decliners was Dogecoin (DOGE), which slid 4.5%, while BNB Chain’s BNB gained 1% amid renewed interest in its ecosystem. The CoinDesk 20 (CD20) index, tracking the largest cryptocurrencies by market capitalization, fell 2.5%.
The CPI measures the average change in consumer prices over time and is closely monitored by investors, as fluctuations can influence the Federal Reserve’s monetary policy decisions. Bitcoin and the broader crypto market often react to CPI data, given the asset class’s perceived role as a hedge against inflation.
For January, economists expect a 0.3% monthly rise in the all-items CPI index, with annual inflation holding at 2.9%. These figures could provide insight into whether the Federal Reserve will consider interest rate cuts in 2025.
Market participants believe any signals of a Fed rate cut could weaken the dollar and drive demand for riskier assets, including cryptocurrencies.
“We infer that the market is heavily long on the dollar. Given that negative news has likely been priced in, we believe USD now faces greater downside risk,” Singapore-based QCP Capital stated in a Telegram update.
“If the CPI report surprises positively, it could trigger a wave of dollar unwinding, potentially sending risk assets higher. Tonight’s release could serve as a key catalyst for a sharp move lower in the DXY (U.S. Dollar Index).”
However, QCP Capital cautioned that not all crypto assets might benefit from this scenario. “Bitcoin continues to underperform equities and gold, suggesting hesitation among crypto investors. Liquidity remains thin across numerous new listings, and last week’s large-scale liquidation event wiped out many traders.”
In light of current market conditions, QCP Capital suggested that purchasing “downside protection” through options—contracts that gain value as prices decline—remains one of the best strategies to hedge against volatility.
