DeepSeek’s Impact on the Crypto Market

The Emergence of DeepSeek and Its Impact on Tech Markets

DeepSeek’s debut caught many by surprise, as technological leadership in AI has traditionally been dominated by American giants like Google and OpenAI.

The launch of the new AI model sent shockwaves through financial markets, triggering a sharp decline in major tech stocks. The so-called “Big Seven”—Apple, Nvidia, Tesla, Microsoft, Amazon, Meta, and Alphabet (Google)—saw significant sell-offs, with Nvidia taking the hardest hit, losing nearly 17% of its value in a short period. 

The turmoil extended to the U.S. crypto mining sector. Shares of leading mining firms, including Riot Platforms (RIOT) and Marathon Digital Holdings (MARA), fell by 15.5% and 8.5%, respectively. Meanwhile, companies specializing in high-performance computing for AI training, such as Terra Wulf (WULF) and Applied Digital Corporation (APLD), saw even steeper declines of 30% and 27.7%.

Investor concerns centered on fears that widely accessible, open-source AI models like DeepSeek could undermine the dominance of U.S. tech giants and devalue their multi-billion-dollar AI investments.

The crypto market was not spared. The day after DeepSeek’s release, Bitcoin dropped by 6%, Ethereum fell by 7%, and several altcoins saw double-digit losses. This volatility once again demonstrated that cryptocurrencies remain highly sensitive to broader financial trends and macroeconomic events.

Although both crypto and tech stocks have started to recover, investor uncertainty remains high, suggesting that a new cycle of market turbulence may be on the horizon.

DeepSeek’s Long-Term Impact on the Crypto Market

Despite the initial concerns surrounding DeepSeek’s launch, experts believe its long-term influence on the cryptocurrency market will be minimal. The key reason is its open-source nature, which allows developers to modify and enhance the model, reducing the monopoly advantage of major players. However, this same open-source approach—considered too “raw” by professional developers—has already led to widespread leaks, with the first major incident occurring just three days after release.

Geoffrey Kendrick, an analyst at Standard Chartered, suggests that the growing accessibility of AI tools could actually benefit cryptocurrencies. In particular, lower AI costs are likely to fuel inflation, which, in turn, would strengthen Bitcoin’s appeal as a store of value. He also predicts that Bitcoin could soon reach a new all-time high of $130,000.

Paul Howard, CEO of liquidity provider Wincet, believes that while DeepSeek may accelerate AI development, it won’t have a significant impact on institutional interest in cryptocurrencies. In his view, the lower cost of the model won’t alter the strategies of major market players, as crypto remains a separate class of high-risk assets.

The Connection Between the Crypto Market and TradFi

Although cryptocurrencies and artificial intelligence aren’t directly related (excluding AI agent tokens), DeepSeek’s emergence has still had an impact on the crypto space.

Jean Rausis, founder of the decentralized exchange SMARDEX, noted that the decline in crypto-related assets was driven by broader market volatility. Investors, spooked by uncertainty in traditional markets, began offloading riskier assets, including Bitcoin.

Exodus CEO JP Richardson emphasized that crypto remains closely linked to traditional finance, meaning instability in legacy markets inevitably ripples into digital assets. Analysts at Wintermute confirmed that this correlation is expected to persist over the long term.

According to Dow Jones Market Data, the six-month correlation coefficient between Bitcoin and the Nasdaq Composite index has reached 0.5, the highest level since March 2023. This underscores the direct influence of stock market sentiment on the cryptocurrency sector.

For a detailed analysis of this trend, read our article: “Bitcoin’s Rising Correlation with Nasdaq – Geoffrey Kendrick.”

In other words, when investors worry about economic instability, they tend to reduce their exposure to high-risk assets, leading to a decline in BTC and other digital currencies. This challenges the long-standing narrative of Bitcoin as a viable alternative to gold and raises questions about its role in times of financial uncertainty.

Nevertheless, institutional investors remain engaged, viewing digital assets as potential diversification tools for their portfolios.

Global Demand for Bitcoin Continues to Grow

Despite short-term volatility, the cryptocurrency market is gaining support, even from regulators. The Czech National Bank, for example, is considering converting 5% of its foreign reserves (around €140 billion) into Bitcoin. If this plan moves forward, the Czech Republic would become the world’s largest state holder of BTC, surpassing El Salvador.

Switzerland is also embracing digital assets. Pro-crypto banks are emerging, and efforts are underway to collect signatures for a referendum that could integrate Bitcoin into the country’s financial system. With foreign reserves six times larger than those of the Czech Republic, Switzerland’s potential adoption of BTC could have a significant impact on the market.

Experts believe that if central banks start adopting Bitcoin, other countries may follow, driving its value higher. Another factor boosting the crypto market is the repeal of the SAB 121 accounting rule in the U.S., which could further increase institutional interest in digital assets.

Overall, while DeepSeek’s launch caused a temporary downturn in the crypto market, its long-term impact appears to be minimal. More importantly, macroeconomic trends, especially growing interest from governments and institutional investors in BTC, could strengthen Bitcoin and drive its continued price growth.