Here’s why DeepSeek crashed your Bitcoin and crypto

The Bitcoin price dropped 6% on Jan. 27 when stock markets responded to the debut of China’s open-source, highly efficient AI model that investor Marc Andreessen dubbed “AI’s Sputnik moment.”

DeepSeek spooked US markets on news that the model’s developers were able to produce a worthy competitor to American AI firms like OpenAI at a fraction of the cost. The firm claims it was able to develop its AI model on a shoestring budget of just under $6 million using less advanced hardware from semiconductor manufacturer Nvidia. 

Tech stocks took a beating. All of the “Magnificent Seven” — Apple, Nvidia, Tesla, Microsoft, Amazon, Meta and Alphabet (Google) — saw losses, with Nvidia breaking a Wall Street record and dropping nearly 17% on the day. 

The cheaper and more energy-efficient DeepSeek even sent energy utility stocks spiraling — as they were counting on revenues from more power-intensive computing of US-based models like ChatGPT. 

Crypto wasn’t spared either; major coins like Bitcoin (BTC) and Ether (ETH) saw 6% and 7% losses respectively, while some altcoins suffered losses in the double digits.

Seasoned crypto traders are no strangers to double-digit price swings, but the coinciding drop in price shows that cryptocurrencies are indeed a risk-on asset and are subject to the same market forces that impact traditional finance. 

DeepSeek rattles tech stocks, Bitcoin and crypto

One of the primary reasons behind this “Sputnik moment” is that it surprised the market. The dominant narrative around AI marked the United States as an industry leader. Just last week, US President Donald Trump announced a $500 billion plan to invest in AI and cement his country as the global leader. 

Cryptocurrencies and the shares of crypto-related firms like MicroStrategy also fell, even though crypto has “nothing to do” with DeepSeek, SMARDEX decentralized exchange founder Jean Rausis told MarketWatch. 

Rather, crypto was simply a victim of broader market sentiment. JP Richardson, CEO of crypto exchange Exodus, told Fortune that crypto is a “risk-on” asset and “When there are any shakes or fears in the stock market” such as the appearance of an unexpected AI model, “typically, you see a correlation in the fall of price in the stock market, and that of cryptocurrency and Bitcoin.”

Crypto market maker Wintermute wrote, “Whilst crypto is void of near-term narratives, correlations are driving flows and de-risking is flagged.”

In other words, crypto investors were spooked and sold off. 

The correlation between Bitcoin and stock prices has long been studied as digital assets see broader adoption and acceptance in traditional financial markets. An investor note from BitMEX indicated that the correlation between crypto and equities will stick around for a while.

 “The strong correlation between bitcoin and equities, especially in the current quarter, remains one of the most reliable market dynamics.”

For the most part, prices have started to stabilize and recover, although crypto mining stocks are still seeing minor losses.

While the relatively quick recovery is likely little consolation to the traders who saw hundreds of millions of dollars in long positions liquidated on Monday, some analysts are still optimistic.

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Andre Dragosch, European head of research at asset management firm Bitwise, posted on X on Jan. 28 that “the fact that Bitcoin stabilized while the Nasdaq continued to slide is extremely bullish.”

Even for the broader market, many are optimistic and believe that another, cheaper AI like DeepSeek will have long-term benefits.

DeepSeek means cheaper AI, with little effect on Bitcoin price

Tech experts and market observers were quick to note that DeepSeek is open-source, meaning that other AI developers can take parts of what DeepSeek does well and use them to build and improve their own models.

Richardson said:

“Everybody should be looking at this as a gift to create better, cheaper, faster, open, free AI systems.”

He added that he will use the technology at his own company. “We have an AI bot that takes a look at that code. It reviews every single line, and it will point out all sorts of potential areas that can be improved in the code,” Richardson said. 

While Andreessen’s “Sputnik” suggests history will repeat itself in a Cold War AI race, Paul Howard, director at market liquidity provider Wincet, told Finance Magnates, “DeepSeek will accelerate AI development both in the US and overseas, denying hegemony over AI.”

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The possible effect on crypto is also minimal, per Howard. He said there’s little DeepSeek offers that other LLM trading models don’t already provide, and its lower cost “will do little to influence the way institutional players interact with the crypto market, which is at the amplified risk end of the stock market.”

Just a few days after DeepSeek’s release, Crypto Twitter is already putting the AI through its paces on various aspects of market and crypto-related analysis. Dash Holdings suggested that X’s homegrown Grok AI was more bullish and “identified areas of influence on market trends not considered by Deepseek.”

Crypto YouTuber KrissPax claimed that ChatGPT had more updated information, showing that ChatGPT could answer queries about events as recent as Jan. 25. This may be comparing apples to oranges, as DeepSeek is free, and the free version of ChatGPT’s latest information caps off in January 2023.

Cryptocurrency Inside joked that, if nothing else, DeepSeek gave nice (read: high) Bitcoin price predictions. 

Still, privacy and political concerns could soon temper the hype around DeepSeek. If the debacle around TikTok in the US is any indication of lawmakers’ attitudes toward Chinese apps, then DeepSeek may not be long for American markets.

The frequently hyperbolic celebrity investor Kevin O’Leary said that the app is part of the “economic war” that China is waging against the US, its largest trading partner. He accused a wide variety of Chinese apps — including DeepSeek — of being “Trojan horses” for collecting Americans’ data.

The U.S. is in an economic war with China—whether you see it or not. Deepseek AI isn’t some scrappy startup story; it’s a state-sponsored power play using black-market chips to dominate AI.

China has a pattern—TikTok, Lemon8, Mao’s Little Red Book—all Trojan horses for data… pic.twitter.com/RRp7jiCHUm

— Kevin O’Leary aka Mr. Wonderful (@kevinolearytv) January 29, 2025

Italian privacy regulators are already investigating the app’s privacy policy and whether it complies with EU legislation.

Furthermore, media outlets globally have noted that, when asked about politically sensitive topics regarding the Chinese Communist Party, like Tiananmen Square or Taiwan, DeepSeek fails to provide an answer.

So DeepSeek may not be around for long, but while it is, industry participants seem to believe that it will move AI forward, providing better and cheaper LLMs. 

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