Bitcoin Experiences Significant Drop Ahead of FOMC Meeting
Bitcoin (BTC) fell below the $99,000 mark early on Monday as traders capitalized on recent gains in anticipation of the upcoming Federal Open Market Committee (FOMC) meeting in the United States, scheduled for January 28-29. The sentiment in the U.S. tech sector was notably influenced by the developments surrounding DeepSeek, an AI powerhouse based in China.
Market analysts are predicting that the FOMC meeting will provide no signals regarding a potential interest rate cut, a factor that has historically affected bitcoin’s price as investors navigate their preferences between riskier assets and more stable investments. According to Ben El-Baz, managing director at HashKey Global, “U.S. economic data indicates that there may be less urgency for a federal interest rate cut in the near future.” He further noted, “While concerns about trade wars and tariffs remain, the bullish sentiment persists, particularly as MicroStrategy and Trump’s World Liberty Financial continue to invest in cryptocurrencies.”
The price of BTC plummeted nearly 6% from a weekend high that exceeded $105,000, with a rapid decline occurring as Asian markets opened on Monday. This drop came despite a significant development on Friday, when U.S. President Donald Trump announced the formation of a crypto policy group aimed at advising and advancing the nation’s crypto industry within the next six months.
Following this, the overall cryptocurrency market capitalization fell by 8%, while the broader CoinDesk 20 (CD20) index saw a decline of more than 8.14%. This downturn mirrored the decline in U.S. stock indices, which have shown a tendency to parallel bitcoin’s price movements. Futures for the S&P 500 and Nasdaq 100 fell by as much as 2.15% on Monday, prior to the market opening.
The prevailing concerns stem from a possible overvaluation of U.S. technology companies. DeepSeek’s latest AI model has been reported to be significantly cheaper to produce, utilizing open-source technology that is readily accessible. As reported by CoinDesk on Monday, data from DeepSeek shared on Hugging Face, a prominent forum in the AI industry, indicates that their model outperforms that of OpenAI, all while being developed on a budget of just $6 million and utilizing a fraction of the Graphics Processing Units (GPUs) that OpenAI employs. OpenAI recently closed a funding round of $6.6 billion, with its valuation soaring above $157 billion.
OpenAI has previously sought trillions of dollars in funding to develop large-scale AI systems and is involved in the U.S. project Stargate, which has attracted $500 billion in investments and includes notable backers such as Trump, SoftBank, and Oracle to create AI data centers across the country. However, the reported costs and features from DeepSeek challenge the established belief that vast computational resources are necessary for AI innovation, potentially undermining the competitive advantage of U.S. tech firms and raising questions about the sustainability of their high valuations—factors that could negatively impact broader market sentiment and bitcoin in the short term.
In light of these developments, traders have begun to purchase $95,000 strike options for bitcoin, seeking downside protection as the market navigates potential risks ahead of the FOMC meeting. This indicates a prevalent expectation for a downward shift in the market. “Our desk has observed a rising interest in January’s $95,000 strikes as market participants rushed for downside protection after BTC lost momentum during the U.S. trading session yesterday,” noted traders at QCP Capital, based in Singapore, in a broadcast on Saturday.
Furthermore, QCP added, “With no major catalysts expected before next week’s FOMC meeting, the market is likely to remain range-bound until there is more clarity on how the recently reported weak Consumer Price Index (CPI) figures might influence the Fed’s forthcoming policy decisions.”
