Bitcoin, the world’s largest cryptocurrency by market capitalization, fell below $100,000 on January 27, 2025, marking its first drop below this threshold since US President Donald Trump took office. This downturn comes as global markets react to a mix of rising competition in the AI sector and shifting expectations surrounding US monetary policies.
Bitcoin dropped to as low as $98,046 last week, driven by a combination of factors weighing on investor sentiment. A key catalyst for this turbulence is the rapid rise of DeepSeek, a China-based AI app that has shaken up the tech landscape. DeepSeek recently overtook ChatGPT to claim the top spot on the US Apple App Store, only one week after its launch. This sudden surge in AI competition has left investors on edge, fueling a broader market sell-off.
Alvin Kan, Chief Operating Officer at Bitget Wallet, explained that the hype surrounding DeepSeek and the broader volatility in the US AI market have contributed to a shift in investor behavior. “The hype around DeepSeek and broader volatility in the US AI market has spooked investors, leading to a flight to safety,” Kan said in a statement shared with Cointelegraph.
The excitement surrounding DeepSeek is not just about its immediate success; it also signals the intensifying global AI arms race. DeepSeek’s AI model, which was reportedly developed with $6 million in funding, has raised fears of escalating competition in the sector. This growing anxiety has reverberated throughout global markets, affecting not just cryptocurrencies but also traditional tech stocks.
Nvidia, which has become a dominant player in the AI boom, saw a 3.12% drop in its stock price by January 24, 2025. Nvidia’s $3.49 trillion valuation had previously been bolstered by the booming demand for AI technology, but the company also felt the pinch from broader market jitters.
The crypto market was not spared from the turbulence, as around $864 million in positions were wiped out. Bitcoin long positions accounted for a substantial $250 million of those liquidations, according to data from CoinGlass. “Some derivatives who put bullish positions on margin got called,” said Justin d’Anethan, Head of Sales at Liquifi, a token launch advisory firm. “The scramble for downside protection suggests traders are bracing for further chop.”
As if the AI-driven volatility wasn’t enough, the US Federal Reserve’s monetary policy outlook is also weighing on the market. The upcoming Federal Reserve meeting, scheduled for January 28-29, is expected to keep interest rates unchanged at 4.25% to 4.5%. The market is pricing in a more hawkish tone, given that there are no expectations of rate cuts in the near future. This cautious sentiment has contributed to the current state of uncertainty in both the crypto and traditional financial markets.
“The market is likely to hover in this range as it waits for fresh policy cues,” d’Anethan added, referring to the current lull in major market movements ahead of the Fed’s decision.
Despite the prevailing negative sentiment, some analysts remain optimistic about Bitcoin’s outlook. Matrixport, a leading crypto services firm, points to the Chinese New Year and Lunar New Year celebrations as a potential bright spot for Bitcoin. These holidays mark a historically favorable 20-day window for Bitcoin, statistically speaking, which could provide a much-needed boost for the cryptocurrency in the short term.
Bitcoin’s recent dip below $100,000 highlights the fragility of the current market climate, where a confluence of factors—ranging from AI competition to monetary policy—are causing widespread uncertainty. As the US Federal Reserve prepares to make its decision on interest rates, traders are left in a holding pattern, bracing for further volatility. However, with the Lunar New Year festivities potentially providing a positive catalyst, the outlook for Bitcoin could turn more favorable in the coming weeks.
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