During the Lunar New Year, the AI model DeepSeek from Hangzhou, China, brought a huge shock to the global market. Despite its extremely low cost, its effectiveness is comparable to that of AI products from American companies like OpenAI.
A single stone stirs up a thousand waves; US tech stocks were hit hard, with the 'Seven Giants'—Apple, Nvidia, Tesla, Microsoft, Amazon, Meta, and Alphabet (Google)—all declining, with Nvidia's stock price dropping nearly 17% at one point. The cryptocurrency market also did not escape, with cryptocurrencies like Bitcoin and Ethereum suffering significant declines, and some altcoins seeing double-digit losses, which seems to reaffirm that cryptocurrencies are indeed risk assets and will be affected by market forces similar to traditional finance. By the way, for those who took the opportunity to make money through US stocks or cryptocurrencies, I recommend using biyapay for trading; biyapay deposits and withdrawals are not frozen.
DeepSeek shocks technology stocks, Bitcoin, and the broader cryptocurrency market
a16z founder Marc Andreessen referred to DeepSeek as the 'Sputnik moment' in the field of AI, one of the main reasons being that DeepSeek has surprised the global market, as the mainstream narrative in the AI field has always viewed the US as the industry leader. (Note: The Sputnik moment refers to the moment when people realize they are threatened and challenged, and must double their efforts to catch up.)
SMARDEX decentralized exchange founder Jean Rausis stated that although it seems 'completely unrelated' to DeepSeek, the stock prices of cryptocurrencies and crypto-related companies like MicroStrategy have fallen, suggesting that cryptocurrencies may be one of the victims in the broader market sentiment. Exodus CEO JP Richardson explained that cryptocurrencies are a 'risk appetite' asset, and whenever there is any volatility or panic in the stock market, such as the unexpected emergence of an AI model, declines are observed, and the stock market is correlated with cryptocurrencies and Bitcoin, leading to synchronized price drops.
Seemingly unrelated yet actually connected? A brief analysis of how DeepSeek affects the cryptocurrency market.
(On January 27, 2025, cryptocurrency prices fell across the board)
Cryptocurrency market maker Wintermute's analysts believe that although cryptocurrencies lack a short-term narrative, their correlation with the stock market is driving capital flow, and de-risking has also been marked.
In other words, if cryptocurrency investors are spooked by the stock market, they will also choose to sell.
As digital assets gain broader adoption and acceptance in traditional financial markets, the correlation between Bitcoin and stock prices has been under study. BitMEX noted in its investor report that the correlation between cryptocurrencies and stocks is likely to persist for quite some time. Dow Jones market data shows that the six-month rolling correlation of Bitcoin with the Nasdaq Composite Index reached 0.5 on Monday, marking the highest level since March 2, 2023.
(Note: The correlation index of Bitcoin with the Nasdaq Composite Index is calculated on a scale from -1 to 1, measuring the degree of mutual movement between the two assets. A correlation of 1 indicates a perfect positive correlation, meaning the movements of the two assets are aligned, while -1 indicates a perfect negative correlation, meaning the movements of the two assets are completely opposite. A correlation of zero indicates that the movement of one asset has no effect on the other.)
Fortunately, the recovery of cryptocurrencies is relatively fast; after a short-term fluctuation, Bitcoin has risen back above $100,000 this weekend.
Seemingly unrelated yet actually connected? A brief analysis of how DeepSeek affects the cryptocurrency market.
Andre Dragosch, head of European research at asset management firm Bitwise, pointed out: While the Nasdaq index continues to decline, Bitcoin remains stable, which is extremely optimistic. Even amidst broader market fluctuations, many people remain optimistic and believe that cheaper AI models like DeepSeek will bring long-term benefits.
DeepSeek lowers the cost of artificial intelligence, but in the long term, it has little impact on Bitcoin prices.
Technical experts and market observers quickly noticed that DeepSeek is open source, meaning other AI developers can leverage some of DeepSeek's advantages to build and improve their own models. Standard Chartered analyst Geoff Kendrick analyzed: "The market positioning of AI will become clearer, and if lower-cost AI tools (marginally) reduce inflation, then risk assets unrelated to AI, such as Bitcoin, should benefit."
As risks temporarily recede, Bitcoin's momentum seems to be strengthening again. Geoff Kendrick expects that Bitcoin may be just a few days away from its next historical high, seemingly set to surpass its record of around $109,000 next week, with prices potentially reaching up to $130,000 during February to March.
Liquidity provider Wincet executive Paul Howard further analyzed: "DeepSeek will accelerate AI development both in the US and overseas, negating AI hegemony, and its potential impact on cryptocurrencies is actually quite small. The functionalities provided by DeepSeek are few compared to what other LLM trading models can offer, and its lower cost does not significantly influence how institutional participants interact with the cryptocurrency market, as the cryptocurrency market is at the risk amplification end of the stock market."
On the other hand, there have been some positive news recently regarding Bitcoin and the broader cryptocurrency market on a macro level.
According to a report from the UK (Financial Times), if the plan proposed by Czech Central Bank Governor Aleš Michl is approved, the Czech Central Bank may eventually convert 5% of its €140 billion foreign exchange reserves into Bitcoin. Geoff Kendrick calculated: "At current prices, the Czech Central Bank would hold 69,000 Bitcoins, while the country with the highest known Bitcoin holdings is El Salvador, which holds 6,049." Additionally, the Swiss National Bank also seems to be moving towards embracing Bitcoin. The Swiss Federal Government has officially begun reviewing a nationwide referendum proposal called "Building a Financially Robust and Responsible Switzerland (Bitcoin Initiative)" that has been published in the Federal Gazette and is now in the signature collection phase, aiming to incorporate Bitcoin into the Swiss national financial system through a constitutional amendment. Although it may take some time, this initiative is significant because Switzerland's foreign exchange reserves are six times that of the Czech Republic.
The cryptocurrency community predicts that the establishment of a Bitcoin reserve by the United States will trigger other countries to establish their own Bitcoin reserves, significantly boosting Bitcoin's price. Although Trump has yet to take action, his order has indeed cleared the way for the establishment of a 'reserve', which means the US may retain the 207,000 Bitcoins it already holds. Meanwhile, the US Securities and Exchange Commission has canceled Staff Accounting Bulletin No. 121 (SAB 121), which will also boost institutional demand for digital assets.
Overall, as a powerful AI model, the development and application of DeepSeek may have some impact on traditional finance and the crypto market, especially since it recently triggered a 'brief collapse' in the Bitcoin and cryptocurrency market. However, in the long run, it seems unlikely to have a major impact on prices, so it may be worth viewing DeepSeek as a gift that creates better, cheaper, faster, open, and free AI.