Bitcoin (BTC) dipped below $99,000 on Monday morning as traders booked profits ahead of the upcoming Federal Open Market Committee (FOMC) meeting, while concerns over new AI developments from DeepSeek weighed on broader market sentiment.
The FOMC meeting, scheduled for January 28-29, is anticipated to influence market conditions, particularly risk assets like bitcoin. Investors are watching closely for any indications that the Federal Reserve may adjust its interest rate policies, especially after recent data suggested less immediate need for cuts. This uncertainty contributed to the pullback in bitcoin’s price, as it echoed the reactions seen in other risk markets.
Ben El-Baz, managing director at HashKey Global, noted, “Despite ongoing trade uncertainties, economic data points to fewer rate cuts in the near future. This has caused a mix of optimism and caution in the market, especially as crypto continues to attract attention despite recent volatility.”
Bitcoin saw a near 6% drop from its Sunday high of $105,000, with the sell-off intensifying when markets opened in Asia. This decline came despite a more positive catalyst earlier in the week when U.S. President Donald Trump announced a new advisory group to support the crypto industry. However, the market’s overall sentiment remained cautious amid lingering uncertainties about future monetary policy and macroeconomic factors.
The broader cryptocurrency market followed suit, with the total market cap falling by 8%, and the CoinDesk 20 Index experiencing a drop of 8.14%. Meanwhile, traditional stock indices also saw a decline, with S&P 500 and Nasdaq 100 futures falling by up to 2.15% as investors waited for more clarity on the Fed’s policy direction.
One of the contributing factors to the market’s weakness was growing unease over the overvaluation of U.S. tech stocks, particularly in light of DeepSeek’s newly released AI model. DeepSeek’s model, which outperforms OpenAI’s, was developed on a fraction of the budget and computational resources, leading to concerns about the sustainability of valuations for major tech companies. This shift in the AI landscape has unsettled investors, causing ripple effects across both traditional tech stocks and the cryptocurrency space.
DeepSeek’s AI, built on a modest $6 million budget, challenges the belief that massive computational power is required for cutting-edge AI innovation. This disruption has cast doubt on the valuation of companies like OpenAI, which raised $6.6 billion, further impacting investor confidence and market sentiment.
In response to the heightened uncertainty, many bitcoin traders turned to downside protection, with an uptick in the purchase of $95,000 strike options. These options allow investors to hedge against further price declines, signaling that caution remains widespread as the market braces for potential volatility ahead of the FOMC meeting.
QCP Capital analysts observed, “The surge in demand for $95,000 options indicates a growing sense of concern over bitcoin’s price movement. With little expected action before the FOMC meeting, the market is likely to stay range-bound in the short term, but traders are seeking protection against further downside.”
As the market waits for the Fed’s decision and further clarity on macroeconomic conditions, bitcoin’s short-term trajectory remains uncertain, with continued volatility expected in the days leading up to the FOMC meeting.
