By Omkar Godbole (All times ET unless indicated otherwise)
Last week, we suggested that Bitcoin hovering above $100,000 resembled a coiled spring, poised to release energy in either direction. Unfortunately for bullish investors, the recent market sentiment has taken a downward trajectory, largely influenced by concerns surrounding the Chinese AI startup DeepSeek and its potential impact on the U.S. AI sector and technological leadership.
Market Reaction and Price Drops
During Asian trading hours, Bitcoin saw a significant decline, plummeting to $97,800. The drop was exacerbated by large investors, or “whales,” who pushed prices lower to liquidate over-leveraged buyers on perpetual futures exchanges. Additionally, AI tokens reliant on GPUs experienced sell-offs of up to 40%, with GameFi assets feeling similar pressures.
The tech-heavy Nasdaq futures plummeted by 700 points, with shares of chipmaker Nvidia (NVDA) predicted to drop by 10% in pre-market trading. The launch of DeepSeek-R1, which is anticipated to drastically lower the costs associated with developing large language models, raises valid questions about the lofty valuations of AI-related companies like Nvidia.
Market Analyst Insights
Trader and analyst Alex Kruger shared his thoughts on X, emphasizing that the market’s reaction stems from uncertainty regarding DeepSeek’s effects. He noted, “The problem is, few understand how DeepSeek changes things. It’s hard to quantify the issue—and when facing uncertainty, people derisk. When this happens in low liquidity conditions, the market flushes hard.”
Kruger has chosen not to buy the dip, opting instead to short positions above the $100,000 mark as he expects increased volatility leading up to the upcoming Federal Reserve meeting and potential political maneuvering from President Donald Trump. The Fed is anticipated to maintain its hawkish stance regarding interest rates, reiterating its wait-and-see approach.
Hope for Institutional Investment
Despite the bearish sentiment, there are glimmers of hope on the horizon. Paul Howard, Senior Director at Wincent, suggested that institutional participation could see a significant uptick in the coming months. “The next wave up will likely come from organic participation from institutions in the next 3-4 months. I’d be surprised to see a sharp bounce back to all-time highs before Q2,” he stated in an email.
Howard also highlighted the potential of newly launched layer-1 blockchains focused on security and transactions per second, such as SUPRA, as valuable investment opportunities. He emphasized that long-biased funds should seek out low market-cap layer-1s alongside established peers to uncover alpha in a bearish market.
Upcoming Events: What to Watch
In the crypto space, several key events are on the horizon:
– January 27 (provisional): Launch of Abstract, an Ethereum L2, aiming to expand the Pudgy Penguins project beyond NFTs.
– January 28, 1:00 p.m.: Hedera (HBAR) network upgrade to v0.57.5.
– January 29: Cardano’s Plomin hard fork network upgrade.
– February 2, 8:00 p.m.: Core blockchain Athena hard fork network upgrade (v1.0.14).
– February 4: MicroStrategy Inc. (MSTR) Q4 FY 2024 earnings report.
– February 4: Pepecoin (PEPE) halving, reducing the reward to 31,250 PEPE at block 400,000.
– February 5, 3:00 p.m.: Boba Network’s Holocene hard fork network upgrade for its Ethereum-based L2 mainnet.
– February 6, 8:00 a.m.: Shentu Chain network upgrade (v2.14.0).
– February 12: Hut 8 Corp. (HUT) Q4 2024 earnings report.
– February 15: Qtum (QTUM) hard fork network upgrade at block 4,590,000.
– February 18 (after market close): Semler Scientific (SMLR) Q4 2024 earnings report.
– February 20: Coinbase Global (COIN) Q4 2024 earnings report.
In the macroeconomic realm, important reports include:
– January 27, 10:00 a.m.: U.S. Census Bureau’s December 2024 Monthly New Residential Sales report.
– January 28, 8:30 a.m.: Monthly Advance Report on Durable Goods Manufacturers’ Shipments Inventories and Orders.
– January 29, 2:00 p.m.: Federal Open Market Committee’s interest rate decision announcement.
Token Events and Governance Votes
Several governance votes are taking place within the crypto space:
– Compound DAO is voting on interest-rate curve adjustments for Stablecoin Comets across multiple networks, including Ethereum and Base.
– Clover Finance DAO is considering a rebrand from the CLV Network to the Lucent Network, shifting its focus toward decentralized finance and artificial intelligence.
– Arbitrum DAO is voting on a proposal for establishing the Arbitrum Strategic Objective Setting (SOS), allowing members to propose and vote on short- to mid-term objectives.
Moreover, significant unlocks are scheduled for January 31 and February 1, where various tokens will release portions of their circulating supply, potentially impacting market dynamics.
Market Movements and Statistics
As of the latest update, Bitcoin has experienced a 5.95% decrease, now priced at $98,784.45, while Ethereum is down 6.12% at $3,050.20. The CoinDesk 20 index has fallen by 9.07% to 3,536.28.
Bitcoin dominance stands at 59.45%, with the Ethereum to Bitcoin ratio at 0.0392. Notably, the hash rate has reached a seven-day moving average of 766 EH/s.
Technical Analysis Overview
In technical terms, the Relative Strength Index (RSI) on the hourly chart has dropped to 20, marking the most significant bearish momentum observed in nearly five months. RSI values below 30 are typically interpreted as oversold conditions, indicating a potential for a market rebound.
Crypto Equities Update
Key equities in the crypto sector have also been affected:
– MicroStrategy (MSTR): Closed at $353.67, down 4.9% in pre-market.
– Coinbase Global (COIN): Closed at $298.00, down 4.9% in pre-market.
– Riot Platforms (RIOT): Closed at $13.54, down 6.94% in pre-market.
ETF Flows and Overnight Trends
Spot BTC ETFs are witnessing a daily net flow of $517.7 million, with cumulative net flows reaching $39.94 billion. Spot ETH ETFs are also seeing inflows, totaling $9.18 million daily.
Final Thoughts: The Impact of Global Events
As the crypto market grapples with various challenges, including pressures from global economic factors and technological advancements, staying informed about upcoming events and market trends is crucial. The effects of China’s DeepSeek and the Federal Reserve’s decisions will likely continue to resonate within the crypto space, making this an essential period for traders and investors alike.
