The price of Bitcoin (BTC) has dropped below $98,000, falling from $105,000 to as low as $97,750 today, representing a sudden decrease of -6.8%. This rapid decline aligns with increased volatility in both crypto and traditional markets, with several factors contributing to the downward trend of BTC.
Reasons Behind Bitcoin’s Decline Today
#1 Influence of DeepSeek on Tech Markets
A major factor driving the overall risk-off sentiment is the emergence of DeepSeek, a Chinese AI platform that has quickly gained prominence and cost efficiency, shaking up US tech giants. In a post shared by The Kobeissi Letter through X, it was mentioned: “Nasdaq 100 futures have plummeted by -330 POINTS since the market opened due to DeepSeek becoming the top app on the App Store. This signals DeepSeek as a significant threat to US tech giants.”
DeepSeek, in comparison to ChatGPT, was created at a lower cost using less advanced hardware but has shown superior performance in various benchmark tests. This has raised concerns about the potential jeopardy to the dominance of US-based AI companies.
The Kobeissi Letter pointed out: “OpenAI, valued at ~$157 BILLION in October 2024, has approximately 22 TIMES more employees than DeepSeek. This unexpected scenario has caught markets off guard.”
Traders are apprehensive that if investors withdraw funds from overvalued AI stocks, it could lead to a broader tech market downturn, impacting Bitcoin and the crypto market due to their correlation. According to crypto analyst Miles Deutscher on X, “Crypto is leading the way while traditional markets are closed, being a higher risk-beta asset class.”
Despite the current situation, Deutscher believes that once the AI stock frenzy subsides, it could benefit Bitcoin and crypto as liquidity shifts back. He stated, “If DeepSeek acts as the catalyst to burst the AI stock bubble, this could actually be positive for crypto, redirecting speculative capital that was previously going into BTC/crypto.”
#2 Pre-FOMC De-Risking
Another contributing factor to the current downward trend is the typical pre-FOMC market de-risking. Investors often reevaluate their portfolios before Federal Open Market Committee meetings, scheduled for January 28โ29, 2025. While the consensus leans towards unchanged interest rates, riskier assets like Bitcoin face selling pressure prior to such announcements.
Deutscher noted, “Pre-FOMC de-risking is quite common, especially in an environment where we are highly sensitive to rates, the US dollar, and liquidity.”
He also speculated on whether Federal Reserve Chair Jerome Powell might adopt a more accommodative stance, considering the recent change in the US presidency. Deutscher pondered, “If stocks are already in panic mode, will Jerome Powell take a hawkish approach right after Trump’s inauguration? My prediction is that the pre-FOMC sell-off might signal the local bottom.”
#3 Absence of New Positive Catalyst Following Trump’s Executive Order
Traders mention a perceived lack of fresh bullish news after President Donald Trump’s inaugural crypto executive order last week. While the initial order boosted crypto optimism, the absence of a new catalyst left traders wanting more. Deutscher described this as the “void of a short-term guiding light post-Trump’s inauguration.”
#4 Impact of Long Liquidations on Price Movement
According to Coinglass data, a surge in long liquidations has intensified the downward pressure on prices. In the past 24 hours, 313,683 traders were liquidated, with total cryptocurrency liquidations amounting to $853.92 million, predominantly from long positions.
The largest single liquidation occurred on HTX for BTC-USDT, valued at $98.46 million. Long positions worth $250 million were liquidated in the Bitcoin market alone. The increase in liquidations exacerbated BTC’s decline, leading more traders to close their positions. Analysts view these forced liquidations as both a cause and a symptom of heightened market volatility.
Currently, BTC is trading at $98,983.
