Bitcoin’s market sentiment has turned bearish, following a significant 700-point drop in Nasdaq futures. This risk-off movement is largely attributed to concerns about the rise of DeepSeek, a Chinese AI startup, which is seen as a potential disruptor to U.S. technological leadership.

Bitcoin’s perpetual futures funding rates, which reflect the cost of holding long and short positions, have turned negative, according to data from Velo Data. This shift signals a growing bearish outlook, with traders taking on more short positions in anticipation of a further price decline.

Bitcoin has fallen by over 3% since the early Asian trading hours, briefly dipping below the $98,000 mark. Meanwhile, Nasdaq futures have dropped more than 3.5%, with tech stocks like NVIDIA — a key AI player — seeing a 10% drop in pre-market trading.

“The market sell-off follows President Donald Trump’s recent green light for a crypto policy working group, but without a clear commitment to a U.S. bitcoin reserve,” said Petr Kozyakov, CEO of Mercuryo. “Additionally, the success of DeepSeek is unsettling tech stocks, as it demonstrates that AI models can be developed more cost-effectively outside the U.S.”

Historically, when funding rates turn negative, it has often been a sign that prices could reach a temporary bottom, presenting the potential for a short squeeze. However, with the funding rate just slightly negative, it’s still too early to conclude that the short BTC trade has become overcrowded.