The Cryptocurrency Correction: What's Driving the Selloff in Bitcoin, Ethereum, and Dogecoin?

The cryptocurrency market is grappling with a sharp correction in October 2025, with Bitcoin (BTC), Ethereum (ETH), and Dogecoin (DOGE) all experiencing significant declines. While the broader macroeconomic landscape has historically supported crypto as a hedge against inflation and liquidity expansion, recent developments have introduced headwinds that are reshaping investor sentiment. This analysis unpacks the key drivers behind the selloff, focusing on macroeconomic risks and shifting market dynamics.

Macroeconomic Risks: Fed Policy, Inflation, and Dollar Volatility

The Federal Reserve's monetary policy remains the most critical factor influencing crypto markets. In September 2025, the Fed cut interest rates by 25 basis points, pushing Bitcoin to $117,000 and Ethereum above $4,600, according to a Yahoo Finance analysis. However, these gains were short-lived as markets had already priced in the move, and the Fed's cautious messaging limited optimism, as noted in the Yahoo Finance analysis. The situation worsened in October when fears of a U.S. government shutdown delayed critical economic data, including the September jobs report, leaving the Fed with incomplete information ahead of its October 29 meeting, according to a CoinDesk analysis. This uncertainty triggered a risk-off selloff, with Bitcoin falling below $112,000, Ethereum dropping 4.7%, and Dogecoin plummeting nearly 8%, a trend highlighted by CoinDesk.

The U.S. dollar's strength-or weakness-also plays a pivotal role. A weaker dollar typically supports crypto prices by reducing the cost of capital for global investors. However, the dollar's trajectory in October became uncertain due to conflicting signals from the Fed. While rate cuts are expected to weaken the dollar, the Fed's emphasis on inflation control has kept the currency resilient, creating a tug-of-war for crypto demand, as discussed in the Yahoo Finance analysis.

Inflation data, meanwhile, has been a double-edged sword. While progress toward the Fed's 2% target has historically driven risk-on behavior, persistent inflation in sectors like housing and tariffs-exacerbated by Trump-era policies-has kept investors wary, according to a Mapfre analysis. The July 2025 CPI report, which showed 2.7% annual inflation, was a mixed signal: it hinted at easing pressures but still left room for the Fed to delay aggressive rate cuts, a point underscored by Mapfre. This ambiguity has led to choppy trading conditions for cryptocurrencies.

Investor Sentiment: ETFs, Leverage, and Regulatory Uncertainty

Institutional adoption has been a tailwind for crypto in 2025, with spot Bitcoin and Ethereum ETFs attracting over $28 billion in net inflows, according to a Coinpedia analysis. However, October's selloff exposed vulnerabilities in this narrative. Ethereum-linked ETFs saw outflows as investors rotated to safer assets, while leveraged positions in crypto-particularly in altcoins like Dogecoin-were liquidated en masse, wiping out $1.65 billion in capital, as reported by CoinDesk. The upcoming $23 billion options expiry for Bitcoin and Ethereum further amplified volatility, as traders scrambled to hedge or close positions, another risk flagged by CoinDesk.

Regulatory developments have also shaped sentiment. The anticipation of SEC approvals for XRP ETFs in late October initially buoyed altcoin markets, but delays and mixed signals from regulators created a "wait-and-see" environment, according to the Coinpedia analysis. Dogecoin, which relies heavily on retail sentiment, has been particularly vulnerable to these shifts. While it entered a "Pre-Mega Run" pattern in early October, the broader selloff overwhelmed bullish momentum, as noted by Coinpedia.

Geopolitical and Structural Risks

Beyond macroeconomic factors, geopolitical tensions and structural risks are compounding the selloff. The Israel-Iran conflict and ongoing instability in the Middle East have heightened global risk aversion, pushing capital into traditional safe havens like gold and U.S. Treasuries, a dynamic discussed in the Yahoo Finance analysis. Meanwhile, AI-driven trading algorithms and the lack of regulatory clarity for AI in financial markets have introduced new volatility, with rapid price swings becoming more common, as highlighted by Mapfre.

The U.S. government shutdown itself is a wildcard. While the Fed is expected to deliver a 25-basis-point rate cut in October, a surprise pause or delay could trigger a broader market correction. Investors are advised to hedge with put options or reduce leveraged exposure to mitigate these risks, a strategy recommended in the CoinDesk piece.

Looking Ahead: A Path to Recovery?

Despite the near-term turbulence, long-term fundamentals for crypto remain intact. Bitcoin's historical seasonality, institutional adoption, and correlation with gold suggest continued growth potential, a view echoed by Mapfre. Ethereum's oversold RSI levels and the potential for ETF approvals could drive a rebound in the coming months, according to the Coinpedia analysis. For Dogecoin, the key will be whether retail sentiment stabilizes and macroeconomic risks abate.

Historical data on Ethereum's RSI-oversold strategy offers further insight. From 2022 to 2025, 133 RSI-oversold events (RSI 14 < 30) were identified. A 30-day hold after such signals generated a median return of ~3.3%, with positive excess returns in the first ~10 trading days and a hit rate exceeding 57%, figures reported by Coinpedia. However, the strategy's edge fades after day 12, with the benchmark often outperforming by day 21. This suggests that while Ethereum's current oversold RSI may signal short-term buying opportunities, investors should remain cautious about extended holding periods.

Conclusion

The October 2025 selloff in Bitcoin, Ethereum, and Dogecoin is a textbook example of how macroeconomic risks and investor sentiment can collide to create market turbulence. While the Fed's dovish pivot and ETF inflows provide a foundation for recovery, the path forward remains fraught with uncertainty. Investors must balance optimism about crypto's long-term potential with caution in the face of short-term volatility.