Cointelegraph

Compiled by Moni, Odaily

On the eve of the Lunar New Year, the artificial intelligence model DeepSeek has caused a huge shock to the global market. The model has an extremely low cost, but its performance can rival the AI products of American companies like OpenAI.

This has caused a huge stir, with US tech stocks suffering heavy losses, with the "seven giants" - Apple, Nvidia, Tesla, Microsoft, Amazon, Meta and Alphabet (Google) - all falling across the board, with Nvidia's share price falling by nearly 17% at one point. The Altcoin market was also not spared, with Bitcoin and Ethereum falling 6% and 7% respectively, and some Altcoins losing double digits, seemingly once again demonstrating that Cryptocurrencies are indeed a risky asset and are subject to similar market forces as traditional finance.

DeepSeek shocks the tech stocks, Bitcoin, and the broader Cryptocurrency market

a16z founder Marc Andreessen has called DeepSeek the "Sputnik moment" of the AI field, one of the main reasons being that DeepSeek has taken the global market by surprise, as the mainstream narrative in the AI field has always been to see the US as the industry leader. (Note: The Sputnik moment refers to the moment when people realize they are under threat and challenge, and must redouble their efforts to catch up.)

The founder of the decentralized exchange SmarDex, Jean Rausis, said that although it seems to have "nothing to do" with DeepSeek, the prices of Cryptocurrencies and Crypto-related companies like MicroStrategy have fallen, and in the broader market sentiment, Cryptocurrencies may just be one of the sacrifices. Exodus CEO JP Richardson explained that Cryptocurrencies are "risk-seeking" assets, and when the stock market experiences any volatility or panic, such as the emergence of an unexpected AI model, we will see a decline, and the stock market is correlated with Cryptocurrencies and Bitcoin, leading to a synchronized price decline.

Wintermute, a Cryptocurrency market maker, believes that while Cryptocurrencies lack a short-term narrative, their correlation with the stock market is driving capital flows, and de-risking has already been flagged.

In other words, if Cryptocurrency investors are spooked by the stock market, they will also choose to sell.

As digital assets have become more widely adopted and accepted in the traditional financial markets, the correlation between Bitcoin and stock prices has been the subject of research. BitMEX has pointed out in its investor report that the correlation between Cryptocurrencies and stocks is likely to persist for quite some time. Market data from the Dow Jones shows that the six-month rolling correlation between Bitcoin and the Nasdaq Composite Index reached 0.5 this Monday, the highest level since March 2, 2023.

Fortunately, the recovery of Cryptocurrencies is relatively fast, with Bitcoin rebounding above $10,000 over the weekend after experiencing short-term volatility.

Andre Dragosch, head of European research at Bitwise Asset Management, pointed out that the fact that Bitcoin is stabilizing while the Nasdaq index continues to decline is extremely optimistic. Even in the face of broader market volatility, many remain optimistic and believe that cheaper AI models like DeepSeek will bring long-term benefits.

DeepSeek makes AI costs cheaper, with little long-term impact on Bitcoin prices

Tech experts and market observers have quickly noticed that DeepSeek is open-source, meaning that other AI developers can adopt some of DeepSeek's advantages to build and improve their own models. Geoff Kendrick, an analyst at Standard Chartered Bank, analyzed that "the positioning of the AI market will be clearer, but in any case, if cheaper AI tools (at the margin) reduce inflation, risk assets unrelated to AI, such as Bitcoin, should benefit."

As the risk subsides, Bitcoin's momentum seems to be strengthening again. Geoff Kendrick expects Bitcoin to be just a few days away from its next all-time high, seemingly set to surpass its record of around $109,000 next week, with its price potentially reaching $130,000 between February and March.

Paul Howard, an executive at the liquidity provider Wincet, further analyzed that "DeepSeek will accelerate AI development in the US and overseas, negating AI hegemony, and its potential impact on Cryptocurrencies is actually very small. The features provided by DeepSeek are rarely something that other LLM trading models cannot provide, and its lower cost has little impact on the way institutional participants interact with the Cryptocurrency market, as the Cryptocurrency market is the risk-amplified end of the stock market."

On the other hand, there have also been some positive news on the macroeconomic front for Bitcoin and the broader Cryptocurrency market recently.

According to a report in the Financial Times, if the plan proposed by Aleš Michl, the governor of the Czech National Bank, is approved, the Czech National Bank may eventually convert 5% of its €140 billion foreign exchange reserves into Bitcoin. Geoff Kendrick calculated that "at current prices, the Czech National Bank would hold 69,000 Bitcoins, more than the known holdings of any country, with El Salvador currently holding 6,049 Bitcoins." In addition, the Swiss National Bank also seems to be moving towards embracing Bitcoin, with the Swiss Federal Government officially starting to review a popular initiative called "Building a Financially Strong and Responsible Switzerland (Bitcoin Initiative)", which has been published in the Federal Gazette and is in the signature collection phase, aiming to enshrine Bitcoin in the Swiss national financial system through a constitutional amendment, and although it may take some time, this initiative is significant as Switzerland's foreign exchange reserves are six times that of the Czech Republic.

The Cryptocurrency community predicts that the establishment of Bitcoin reserves by the US will trigger other countries to establish their own Bitcoin reserves, significantly boosting the price of Bitcoin. Although Trump has not yet taken action, his order has indeed cleared the way for the establishment of "reserves", meaning that the US may retain the 207,000 Bitcoins it already holds. At the same time, the US Securities and Exchange Commission's cancellation of Staff Accounting Bulletin 121 (SAB 121) will also boost institutional demand for digital assets.

Overall, as a powerful AI model, the development and application of DeepSeek may have a certain degree of impact on the traditional finance and Cryptocurrency markets, as it has recently triggered a "temporary collapse" in the Bitcoin and Cryptocurrency markets. But in the long run, it seems unlikely to have a significant impact on prices, so DeepSeek can be seen as a gift of creating better, cheaper, faster, open and free AI.