The cryptocurrency market experienced significant turbulence as Bitcoin's price plummeted by 5%, settling at $98,432.54, according to Coin Metrics. This decline coincided with a broader market downturn, with the CoinDesk 20 index showing an almost 10% drop. The tumultuous market conditions followed the unveiling of a competitive artificial intelligence model by Chinese startup DeepSeek, raising questions about the United States' dominance in AI and the substantial investments made by big tech companies in AI models and data centers.
In the wake of this development, investors exhibited caution, possibly ahead of the Federal Reserve meeting scheduled to conclude this Wednesday. The anticipation of President Donald Trump's executive order on cryptocurrencies had previously driven Bitcoin to a record high above $109,000 last week, but the market's response to the order has been lukewarm.
"Ultimately this set up digital assets to be more at risk of a sharp sell-off whether the driver of the sell-off came from digital assets or not (in this case Nasdaq)," – Geoff Kendrick
Amidst this volatility, shares of notable companies such as Coinbase and MicroStrategy fell by 6% and 5%, respectively, in premarket trading. Additionally, Core Scientific saw an 18.5% decrease, Terawulf lost 14%, and Iren, formerly known as Iris Energy, dropped by 10%. These declines parallel a 4% dip in Nasdaq futures during early trading hours, emphasizing the strong correlation between Bitcoin and the tech sector.
"This relationship highlights the continued strong (and strengthening) relationship between digital assets and the tech sector. [Bitcoin] remains strongly correlated to Nasdaq, much more so than it does to gold." – Geoff Kendrick
The market's initial reaction to Trump's executive order was mixed despite widespread anticipation. Investors appear to be in a derisking phase as they prepare for upcoming economic policy decisions. Meanwhile, a deeper analysis of Bitcoin's price action reveals a less pessimistic outlook.
"The most important takeaway right now is to see the forest through the trees. When we look at the bitcoin chart, there is nothing bearish about the price action." – Joel Kruger
Despite the current cooling period following Bitcoin's recent peak, the U.S. government maintains a stockpile of Bitcoin but refrains from active trading in the cryptocurrency. The intertwined dynamics of AI advancements, cryptocurrency fluctuations, and tech sector shifts continue to shape investor sentiment and market trajectories.