Bitcoin (BTC) dropped below $99,000 on Monday morning as traders took profits ahead of the Federal Open Market Committee (FOMC) meeting later this week, while concerns surrounding DeepSeek’s AI advancements impacted the broader market.

The FOMC meeting, scheduled for January 28-29, is widely expected to influence risk assets like bitcoin, with investors closely watching for any signs of a rate cut. Given the current economic landscape and data suggesting fewer rate cut needs in the near term, market sentiment remains on edge. As a result, BTC’s price faced downward pressure, particularly in light of historical market reactions to FOMC decisions.

Ben El-Baz, managing director at HashKey Global, noted, “The recent economic indicators point toward less likelihood of a federal interest rate cut. While trade wars remain a concern, the sentiment remains cautiously optimistic as both private and institutional investment in crypto continues.”

Bitcoin experienced a nearly 6% drop from its Sunday high of $105,000, with a sharp decline as Asian markets opened on Monday. This dip came despite a recent announcement from President Donald Trump, who created a new crypto advisory group to support the sector. The announcement initially sparked some optimism, but the profit-taking trend dominated as the market remained uncertain.

Overall, the cryptocurrency market saw an 8% drop, mirroring the broader market trends. The CoinDesk 20 Index also fell more than 8.14%, while traditional stock indices such as the S&P 500 and Nasdaq 100 were down as much as 2.15%.

The downturn can also be attributed to growing concerns about the overvaluation of U.S. tech stocks. DeepSeek’s latest AI model has disrupted the traditional narrative in AI, outperforming OpenAI’s system with a significantly lower budget. DeepSeek’s model, which was built on a $6 million budget and with fewer GPUs, has raised questions about the sustainability of the inflated valuations in tech firms reliant on large-scale infrastructure.

The DeepSeek AI model, which gained attention on platforms like Hugging Face, has revealed the potential for more cost-effective AI development, potentially undercutting tech giants’ valuations and contributing to broader market unease, including in the cryptocurrency sector.

In response to this uncertain market environment, bitcoin traders have turned to downside protection, increasing their demand for $95,000 strike options as a hedge. These options are seen as a way to mitigate risks, especially as the market waits for clarity on upcoming FOMC decisions.

QCP Capital analysts highlighted, “Interest in $95,000 strike options has risen sharply, reflecting concerns about BTC’s short-term direction. With no major catalysts before the FOMC meeting, we expect market movements to remain relatively muted, but the downside risks are certainly being priced in.”

As traders prepare for the FOMC meeting and digest the implications of recent tech sector developments, bitcoin’s immediate outlook remains cautious, with a potential for volatility as the market searches for clearer direction.