Crypto Crumble? Bitcoin, Stocks Slide Amid DeepSeek, FOMC Fears!

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The Scoop: 

  • Bitcoin plunged below the $100K mark, as traders cashed in their chips before the U.S. FOMC meeting this week.
  • No rate cut is expected at the FOMC meeting on Jan 28-29, which has historically swayed bitcoin prices.
  • U.S. stock futures also dipped, as investors grappled with the cost and prowess of China’s DeepSeek AI, overshadowing OpenAI’s narrative.

Bitcoin (BTC) tumbled to under $99,000 early Monday, as traders cashed in their chips ahead of the first U.S. FOMC meeting this year, scheduled for later this week, and China-based AI behemoth DeepSeek rattled U.S. tech sector sentiment.

No rate cut is expected at the two-day FOMC meeting scheduled for Jan 28 to Jan 29, which has typically swayed bitcoin prices as investors either flock to or shun risk assets.

“U.S. economic data suggests that there may be less need for a federal interest rate cut in the near term,” Ben El-Baz, managing director of HashKey Global, told CoinDesk in a Telegram message.

“Trade war concerns still linger, but a bullish sentiment remains strong as MicroStrategy and Trump’s World Liberty Financial continue purchasing crypto,” El-Baz added.

BTC dropped nearly 6% from a Sunday high of over $105,000, with a steep drop coming as Asian markets opened Monday. This came despite a major catalyst on Friday, when U.S. President Donald Trump ordered the creation of a crypto policy group to advise and drive the country’s industry within six months.

Crypto market capitalization fell 8%, while the broad-based CoinDesk 20 (CD20) fell more than 8.14%.

The drop mirrored a fall in U.S. stock indices — whose movements bitcoin tends to follow — with futures of the S&P 500 and Nasdaq 100 down as much as 2.15% on Monday ahead of the market open.

Much of the worry stems from a possible overvaluation in U.S. tech companies, as DeepSeek’s latest AI model is significantly cheaper to produce and was built using open-source technology that is easy to access.

As CoinDesk reported Monday, data from DeepSeek posted on Hugging Face, a forum of the AI industry, shows that its model outperforms OpenAI, all while being built on a budget of $6 million and a fraction of the Graphics Processing Units (GPUs) that OpenAI uses — which recently closed a $6.6 billion round with a valuation of over $157 billion.

OpenAI has previously asked for trillions of dollars in funding to build AI systems at scale and is part of the new U.S. project Stargate, which has attracted $500 billion in investments and includes Trump SoftBank and Oracle, to build AI data centers in the country.

However, DeepSeek’s reported costs and features threaten the established narrative of needing vast computational resources for AI innovation, potentially reducing the competitive edge of U.S. tech firms and questioning the sustainability of their high valuations — impacting broader market sentiment and bitcoin in the near term.

As such, traders loaded on $95,000 strike options for bitcoin to protect against the downside ahead of the week, indicating that expectations of a move lower remain prevalent in the market.

“The desk observed growing interest in the Jan $95,000 strikes as the market scrambled for downside protection after BTC lost momentum during yesterday’s U.S. session,” traders at Singapore-based QCP Capital said in a Saturday broadcast.

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2025-01-27 10:21