Bitcoin (BTC) dropped below $99,000 on Monday morning as traders took profits ahead of the Federal Open Market Committee (FOMC) meeting this week, while growing concerns over DeepSeek’s emerging AI technology contributed to market uncertainty.
The FOMC meeting, set for January 28-29, is widely anticipated to affect risk assets like bitcoin. Investors are particularly focused on any signs that the Federal Reserve may adjust interest rates, especially given recent economic data that suggests there may be less need for cuts in the near future. This heightened uncertainty led to a retreat in bitcoin’s price, mirroring the reactions seen in other risk markets.
Ben El-Baz, managing director at HashKey Global, commented, “While there are concerns surrounding trade tensions, the data indicates that rate cuts may not be as imminent. This has led to a cautious but optimistic outlook, with continued support for the crypto space, despite the market’s recent volatility.”
Bitcoin saw a nearly 6% decline from its Sunday peak of $105,000, with the drop becoming steeper when the Asian markets opened on Monday. The decline came despite President Donald Trump’s announcement of a new advisory group for the crypto industry, which had initially sparked some optimism among investors. However, the continued uncertainty regarding future monetary policies and market conditions kept the momentum from building.
The cryptocurrency market as a whole also took a hit, with the total market capitalization falling 8%, and the CoinDesk 20 Index dropping over 8.14%. Traditional stock indices followed a similar trend, with the S&P 500 and Nasdaq 100 futures down by up to 2.15% as investors awaited clarity on upcoming policy decisions.
Part of the market’s downward pressure was fueled by concerns over the overvaluation of tech stocks, particularly in the wake of DeepSeek’s breakthrough AI model. DeepSeek’s AI, which outperforms OpenAI’s models despite being built with a fraction of the resources and budget, has raised questions about the sustainability of tech giants’ valuations. This shift in the AI landscape has added to investor anxiety, affecting not just the tech sector, but also contributing to the crypto market’s volatility.
DeepSeek’s cost-effective AI model, built for just $6 million, challenges the narrative of needing vast computational power to drive AI innovation. This disruption has cast doubt on the inflated valuations of companies like OpenAI, which raised $6.6 billion recently, further impacting broader market sentiment.
In response to this market uncertainty, many bitcoin traders have shifted to downside protection, buying $95,000 strike options. These options allow investors to hedge against the risk of further declines in bitcoin’s price, reflecting widespread caution ahead of the FOMC meeting.
Analysts at QCP Capital noted, “The increased interest in $95,000 options signals growing concern over bitcoin’s price direction. With no major developments expected before the FOMC meeting, the market is likely to remain range-bound, but downside protection remains a priority for many investors.”
As bitcoin and the broader market await further clarity from the Fed’s decision, the short-term outlook for bitcoin remains uncertain, with volatility expected to persist in the days leading up to the FOMC meeting.
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