Crypto Market Nosedives 6.4%, Triggered by AI Breakthrough and Liquidations

The crypto market experienced a significant jolt on Monday, January 27, with total market capitalization tumbling by 6.4% to $3.38 trillion. This sudden downturn comes in the wake of groundbreaking developments in artificial intelligence, specifically the release of DeepSeek R1, an open-source large-language model developed by China’s AI lab DeepSeek.

Dubbed by Marc Andreessen as “AI’s Sputnik moment,” DeepSeek R1 has disrupted the narrative surrounding AI development. Built on a modest $6 million budget and minimal GPU requirements, the model rivals leading systems from OpenAI while being efficient enough to run on a smartphone. This innovation has spurred a sell-off in AI-related cryptocurrencies as investors recalibrate their positions.

AI-centric tokens bore the brunt of the market’s slump. Render (RNDR) led the losses, plunging 14.6%, followed by Near Protocol (NEAR), The Graph (GRT), and Artificial Superintelligence (FET), which dropped by 11.4%, 11.41%, and 10.41%, respectively. Node.AI (GPU), heavily tied to GPU resources, saw a steep 25% decline. In total, the AI crypto market cap contracted by 10%, from $47.54 billion to $42.50 billion, within just 24 hours.

Crypto Market Liquidations

Adding to the market woes, a wave of leveraged liquidations has exacerbated price declines. Over the past 24 hours, nearly $853 million in liquidations occurred, with $794 million coming from long positions. Bitcoin (BTC) alone saw $247.95 million in long liquidations, intensifying bearish pressure.

Leverage, while amplifying gains during rallies, can trigger cascading sell-offs in a volatile crypto market. Falling prices force margin calls, resulting in further liquidations and a vicious feedback loop that drags prices even lower.

Technical Indicators Highlight Bearish Sentiment

From a technical perspective, the crypto market faces increasing bearish momentum. The market capitalization has slipped below the 50-day simple moving average (SMA) at $3.38 trillion. The relative strength index (RSI) has dropped from a bullish 57 on January 24 to a bearish 43, signaling a shift in sentiment toward the bears.

If selling pressure persists, analysts warn that the market could retreat further, testing psychological support at $3.20 trillion. Breaching this level might push the market toward $3.1 trillion, supported by the 100-day SMA—a level that has acted as a safety net since late November. Conversely, a surge in buying activity could reverse the trend, aiming for a recovery above the 50-day SMA and possibly revisiting the local high of $3.69 trillion recorded on January 20.