Crypto follows equities into risk-off mode amid DeepSeek disruption and bearish FOMC expectations

“The market sell-off was driven by news of China's cost-effective DeepSeek AI model,” Wincent Senior Director Paul Howard told The Block. “Some are predicting a pullback to $70,000 in the coming weeks, particularly if macro data suggests higher interest rates ahead.” DeepSeek unveiled a free, open-source large-language model in late December, claiming it was built in just two months for under $6 million. The project relied on reduced-capability Nvidia H800 chips, underscoring the efficiency of its approach.

Bitcoin and risk assets under pressure

Amid heightened market volatility following the disruptive news about DeepSeek, bitcoin’s recent pullback mirrors a 3% decline in Nasdaq futures, underscoring its continued correlation with risk assets. "Nasdaq 100 futures are down 330 points since the market opened just hours ago as DeepSeek takes #1 on the App Store," the Kobeissi Letter posted on X.com. "This shows how DeepSeek has emerged as a major threat to U.S. large-cap tech, as the stock market never lies."

Meanwhile, Gold futures rebounded after an initial dip on Monday. The Kobeissi Letter added that Gold has opened with a subtle record high in the futures market today, highlighting investors’ pivot to safe-haven assets amid the turbulence.

QCP Capital analysts observed that bitcoin remains range-bound and will likely need a decisive catalyst to move higher. “We do not foresee a break higher for bitcoin without confirmation of a Strategic Bitcoin Reserve,” the analysts said. They added that the Trump administration's evaluation for a "national digital asset stockpile" in last week's crypto-related executive order was not enough to sustain bullishness in the market, at least in the near term.

AI disruption and caution in equity markets

DeepSeek’s AI breakthrough, dubbed “AI’s Sputnik moment” by venture capitalist Marc Andreessen, could challenge the dominance of U.S. AI firms like OpenAI by offering competitive performance at a fraction of the cost, according to analysts.

Dropbox AI VP of Product and Growth Morgan Brown said that by reducing reliance on costly infrastructure, DeepSeek has disrupted the economics of AI, creating a ripple effect across tech and investment markets. "DeepSeek breaks the model of 'only huge tech companies can play in AI,' and that you don't need a billion-dollar data center anymore," Morgan posted in an X.com thread. "A few good GPUs might do it, and this is a classic disruption story."

Beyond AI disruptions, the market is closely watching this week’s macroeconomic data. Thursday’s FOMC meeting is expected to leave rates unchanged, with the CME’s FedWatch tool placing the likelihood of a pause at 99.5%. Meanwhile, Q4 GDP is projected to come in at 2.5%, and the Personal Consumption Expenditures (PCE) inflation data—a key metric for the Federal Reserve—will provide further insights into the central bank’s policy outlook.

“Bitcoin should remain relatively resilient within its current range, regardless of Thursday’s FOMC outcome,” QCP Capital added. However, options market activity indicates bearish sentiment in the short term, with risk reversals skewing toward calls only from March onward. This suggests that traders do not anticipate significant upward momentum until late Q1.