DeepSeek rout costs bulls $100K — 5 Things to know in Bitcoin this week

Bitcoin (BTC) breaks below $100,000 to start the last week of January as US stocks feel the heat from an AI showdown.

• BTC/USD takes a turn for the worse as stocks futures tumble, sparking a new BTC price crash warning.

• The downside comes at an already tense time for risk assets with the Federal Reserve due to decide on interest rate changes.

• The rise of Chinese AI startup DeepSeek sends shockwaves through markets as doubts arise over ChatGPT competitiveness. 

• Bitcoin derivatives markets look increasingly understandable for their cautious stance in recent weeks.

• Short-term holders risk revisiting key price levels which would send them into unrealized loss.

BTC price drops with stocks to start tense week

Bitcoin denied bulls both a historic weekly close and a strong start to the last week of January as a US stocks rout spilled over into crypto markets.

Data from Cointelegraph Markets Pro and TradingView shows BTC/USD dropping up to 4% on Jan. 27, reflecting tumbling stocks futures.

In so doing, Bitcoin gave up the $100,000 mark once more, reaching ten-day lows.

Responding, traders appeared cool, stressing that the mid-term BTC price range remained intact.

“$BTC is simply heading down to one end of our range that we’ve been trapped in for the last week, nothing to be freaking out about,” popular trader Credible Crypto wrote in part of his latest post on X. 

“In fact I’m glad we’re going for the lows first because it’s healthier for us to take liquidity from the lows of this range while leaving liquidity behind at the highs.”

Credible Crypto thus joined those calling for a potential revisit of range lows around $90,000.

“Still betting on a higher low forming here on BTC,” fellow trader CJ continued. 

“Either SFP this current low, or land into the daily untapped demand + yearly open. My line in the sand. … Losing the low that printed the latest ATH wouldn’t be a great look.”

Some, however, felt a sense of foreboding, among them Arthur Hayes, former CEO of crypto derivatives platform BitMEX.

Giving X followers a taste of his forthcoming blog post, Hayes claimed that BTC/USD could see a giant $75,000 crash before heading to a quarter of a million dollars per coin by the end of 2025.

FOMC offers little chance of interest rate cut

The Federal Reserve dominates the macro radar this week as officials decide the future path of interest rates.

The Federal Open Market Committee (FOMC) is widely expected to pause an incremental rate-cutting spree that began in mid-2023 due to inflation markers rebounding across the board.

The latest estimates from CME Group’s FedWatch Tool put the odds of even a small 0.25% cut on Jan. 29 at just 0.5%.

FOMC will be accompanied by a speech and press conference from Fed Chair Jerome Powell, himself under pressure from US President Donald Trump, who expects rates to drop.

“With oil prices going down, I’ll demand that interest rates drop immediately, and likewise they should be dropping all over the world,” he told the World Economic Forum in Davos, Switzerland last week, quoted by Reuters and others.

In a press conference, Trump confirmed that he assumed Powell would listen to his request.

Fresh inflation data will come thick and fast in the coming days, meanwhile, with Q4 GDP and the latest print of the Personal Consumption Expenditures (PCE) Index, the latter known as the Fed’s “preferred” inflation gauge, both due. 

“Are you ready for a huge week ahead?” trading resource The Kobeissi Letter thus responded in one of its latest X threads.

DeepSeek comes for ChatGPT — and US stocks sentiment

A sudden sharp shock for US stocks sets a firmly nervous tone for the week’s first Wall Street trading session.

Nasdaq futures plummeted 2% on Jan. 27, with Kobeissi noting that US stocks on aggregate risk shedding $1 trillion in value at the open.

The reason, it suggests, is the sudden rise of Chinese AI startup DeepSeek, now vying for supremacy with ChatGPT after appearing “out of nowhere.”

“Needless to say, investors in large-cap US tech are worried,” it explained in a dedicated X thread on the topic. 

“The Magnificent 7 stocks are trading ~2 standard deviations above levels seen in 2001 compared to global equities. Much of the bull market over the last 2 years has been on the basis of AI hardware and software.”

Kobeissi noted the vast difference in price between the two AI products, with DeepSeek users reporting other key benefits helping it become the most popular free app on Apple’s App Store. 

Just last week, stocks were setting all-time highs before shorts entered to cash in on an anticipated local top.

Bitcoin’s correlation with equities will thus be under the microscope as risk assets digest a fresh sentiment scare.

“Recently, Bitcoin has remained closely tied to the performance of the US stock market,” onchain analytics platform CryptoQuant reported on Jan. 25.

“In 2024, $BTC and the Nasdaq exhibited a historically strong correlation, which has reached unprecedented high levels today. A similar trend can be observed with the S&P 500, although there have been brief periods of decoupling.”

Prudent derivatives bearishness?

On derivatives markets, signs of waning confidence in BTC price performance were in place long before the stocks rout.

As Cointelegraph reported, bearish derivatives traders contrasted strongly in their approach to the market compared with spot buyers.

The result, CryptoQuant revealed late last week, was a record gap in pricing between the two on global exchange Binance.

“The Binance spot-perpetual gap has remained negative on BTC since Déc. 11th reflecting a shift in sentiment as derivative traders turn bearish in the short term,” it summarized.

CryptoQuant argued that any hint of confidence in the economic outlook at the FOMC meeting and press conference could trigger a rethink among traders.

“Things could shift as the latest inflation data came in better than expected, and if this trend continues, it could restore confidence among investors,” it continued, adding that the gap should neutralize to fall in line with previous Bitcoin bull markets.

Bitcoin speculators inch toward unrealized loss

With BTC/USD below $100,000 once more, key support levels are coming back into the spotlight.

Related: Bitcoin bull market at risk? 7 indicators warn of BTC price ‘cycle top’

In addition to near-term moving averages, these focus on the cost basis of recent buyers, known as short-term holders (STHs).

At the weekend, CryptoQuant flagged the cost basis levels associated with various subclasses of STH investor, including those hodling for just a week.

Currently, $96,000 forms the most important nearby line in the sand, forming the point where hodlers for up to three months on aggregate enter unrealized loss.

Including those with exposure for up to six months, $90,000 becomes an even more significant price point.

“Any major price movement from here will warrant close attention, especially given the level’s importance as both a technical and on-chain support zone,” CryptoQuant concluded.

CEO Ki Young Ju meanwhile flagged diverging market approaches between STH and long-term investors, with the latter decreasing exposure.

“Trump promoted Bitcoin globally. Short-term holders keep entering, while long-term holders are offloading,” he summarized to X followers at the weekend. 

“If you know, you know—this is the definition of a bull market.”

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.