Profits made by traders in the run-up to Trump’s inauguration faded as the crypto market sold off into Jan. 27, with AI tokens, particularly, taking the hardest hit.
The cryptocurrency market took a hit today, with the total market capitalization dropping by over 6.4% to about $3.38 trillion on Monday, Jan. 27.
This sudden plunge has left many investors scratching their heads, trying to understand the core catalysts behind this downturn and whether more losses are on the horizon.
Investors spooked by release of DeepSeek R1
Today’s downturn in the crypto market comes after the release of DeepSeek R1 by the Chinese AI lab DeepSeek, which has had a notable impact on the prices of AI-related tokens.
Dubbed by Marc Andreessen as “AI’s Sputnik moment,” DeepSeek R1 is an open-source artificial intelligence, large-language model that has shattered long-held assumptions about AI development.
DeepSeek matches or surpasses the performance of leading models like those from OpenAI, all while being built on a budget of $6 million and a fraction of the Graphics Processing Units (GPUs) that OpenAI uses, as per data from machine learning resource Hugging Face.
Moreover, it is open-source and requires much less computing power, allowing it to run on a smartphone. This has triggered a risk-off mode among AI-related stocks and crypto AI tokens.
Notably, Render
RNDR
$5.93
led the losses with a drop of 14.6%. Near Protocol
NEAR
$4.42
, The Graph
GRT
$0.1667
and Artificial Superintelligence
FET
$1.06
are also flashing red, down 11.4%, 11.41% and 10.41%, respectively.
Tokens with the most exposure to GPUs were some of the worst-performing AI cryptocurrencies. For example, Node. AI (GPU), which facilitates access to GPUs, is down more than 25% over the last 24 hours.
The total market cap of cryptocurrencies in the AI sector is also hard-hit, down by 10% from $47.54 billion on Jan. 26 to $42.50 billion at the time of writing.
The trading volume has increased by more than 38% in 24 hours to $3.41 billion, reinforcing the intensity of the sell-side pressure.
Leveraged liquidations drive crypto prices lower
A wave of leveraged liquidations has accompanied the crypto market’s downturn today. Leverage allows traders to borrow funds to increase their trading position, amplifying both potential gains and losses.
When the market moves against these positions, especially in a highly volatile environment like crypto, it can lead to a cascade of liquidations.
The latest data indicates that the crypto market has seen nearly $853 million in liquidations over the last 24 hours, with $794 million being long liquidations.
$247.95 million in long Bitcoin (BTC) positions have been liquidated, with the tally continuing at the time of publication.
This phenomenon can create a feedback loop where falling prices trigger more liquidations, further driving down prices.
Crypto market cap struggles at 50 SMA resistance
Today’s drawdown in crypto prices has seen TOTAL—the combined market capitalization of all cryptocurrencies—lose key support provided by the 50 simple moving average (SMA) at $3.38 trillion in the daily timeframe.
Additionally, the relative strength index (RSI) has dropped from the positive region at 57 on Jan. 24 to 43. This suggests that the market sentiment is shifting in favor of the bears.
If the selling intensifies, the crypto market will likely drop toward the $3.20 trillion psychological support. Losing this support would pave the way for further declines to $3.1 trillion,
embraced by the 100-day SMA. Note that this has been a dynamic support trendline for TOTAL since Nov. 21.
On the other hand, a resurgence in buying pressure could push the crypto market cap back above the 50-day SMA and toward the local high of $3.69 trillion reached on Jan. 20.
