Investors are adjusting their positions ahead of an important macroeconomic week.
On the 14th of October, the US is scheduled to release its CPI data for the month of September. This report is crucial as CPI rose 3.4% year over year in August, while the monthly inflation jumped by 0.4%.
The stubborn inflation pressured the Federal Reserve into raising interest rates by 0.25% in September. Naturally, this CPI data will affect the central bank’s rate decision in the upcoming FOMC scheduled for the 28th of October.
But why is crypto crashing? Is it simply cautious positioning ahead of CPI? The U.S. Dollar Index (DXY) has broken above 102 for the first time after five consecutive weeks of gains, with the dollar now on track to see its best week since early March 2025.
A rising dollar is often a negative factor for the price of risk assets.
In short, capital seems to be flowing back into safe assets. That being said, it also explains why crypto is crashing. A strong dollar reduces the capacity of other countries to repay dollar debts, thus damaging the global economy.
As a result, investors are selling their riskier assets (i.e., Bitcoin, altcoins) and converting them into safer bonds, which, in turn, lowers their prices.
However, a stronger dollar makes imports cheaper for the U.S., which could lower inflation. At the same time, the market’s expectations for hikes have fallen to 19% from 42% in a month, while the likelihood of no change is up to 80% from 51%.
It appears that the market is expecting the Fed to keep rates on hold for now, with the higher dollar potentially lowering inflation.
Why is crypto crashing beyond pre-CPI repositioning?
According to CoinGlass data, the crypto market saw over $800 million in liquidations in the past 24 hours, with more than $600 million in long positions betting on higher prices.
Notably, the total crypto market cap is testing the $2.7 trillion support level. Considering the CPI data ahead, this can very well be a healthy market reset if the buyer conviction holds.
According to AMBCrypto, this is where the chart below begins to matter. The Crypto Fear and Greed Index has plunged to 57, down nearly 20% in the same timeframe.
This indicates that the market is cooling off, implying that despite Bitcoin [BTC] falling below $82k, the confidence across the market is starting to fade.
Despite fading rate hike expectations and ongoing deleveraging, the market is too weak to absorb the selling pressure, while the U.S. dollar continues to strengthen.
Under these conditions, the pending CPI report may become a critical factor that will set the direction for the market, thus determining the outlook for risk assets.
For now, the ongoing crash looks like more than just short-term repositioning.
Final Summary
A rising U.S. dollar and CPI uncertainty are putting pressure on crypto prices.
Over $800 million in liquidations and falling sentiment suggest investors are losing confidence.