Bitcoin and the broader crypto market are facing turbulence, with prices slipping amid growing concerns about China’s artificial intelligence (AI) startup, DeepSeek. The rise of this AI model has triggered a significant downturn in tech stocks and cryptocurrencies, underscoring the increasing correlation between these markets.
Why is DeepSeek’s emergence shaking up the crypto space? And what can investors learn from this situation to make better decisions in the future?
DeepSeek’s rise and its ripple effect
DeepSeek, an AI chatbot positioned as a rival to OpenAI’s ChatGPT, has taken the tech world by storm. Within days of launching its open-source language model R1 on January 20, it became the highest-rated free app on Apple’s U.S. App Store.
The buzz around DeepSeek intensified after ScaleAI CEO Alexandr Wang compared it favorably to existing U.S. AI models. However, what really caught investors’ attention was DeepSeek’s claim that it trained its AI at a fraction of the cost of its competitors—just $5.8 million, compared to OpenAI’s $17.9 billion in funding.
This raised eyebrows across the industry, especially since AI development is highly dependent on powerful semiconductor chips, specifically Nvidia’s H100 GPUs. Wang suggested that DeepSeek may have access to about 50,000 H100 chips despite U.S. export restrictions on advanced AI hardware to China. This revelation fueled a sharp sell-off in U.S. tech stocks, particularly Nvidia, which saw its market capitalization shrink by over $600 billion in a single day. The broader stock market followed suit, with the S&P 500 losing more than $1 trillion, while the Nasdaq dropped 3%.
Given the increasing correlation between the stock market and bitcoin, crypto prices also plunged. Bitcoin fell below $100,000, its lowest level since President Donald Trump’s inauguration.
Read also: Bitcoin network and BTC asset: Projections for 2025
Bitcoin ETFs reverse course as investors turn cautious
Investor sentiment quickly shifted to a risk-off approach, leading to major outflows from U.S. spot bitcoin ETFs for the first time in over a week.
According to SoSoValue data, bitcoin ETFs saw a collective $457.48 million in outflows on January 28, ending a seven-day streak of net inflows totaling $4.2 billion. Fidelity’s FBTC led the losses with $268.59 million in outflows, followed by Grayscale’s GBTC, which shed $108.47 million.
Interestingly, BlackRock’s IBIT was the only ETF to record inflows, adding $63.94 million, bringing its cumulative net inflows to nearly $40 billion since launch.
This shift in ETF flows coincided with bitcoin’s price drop from $105,000 to an intraday low of $97,855, triggering nearly $1 billion in liquidations across the global crypto market.
What Investors Can Learn from this Market Reaction
AI’s Growing Influence on Financial Markets
The rise of DeepSeek shows that AI development is no longer just a tech-sector story—it has real implications for financial markets. AI-driven sell-offs could become more common, making it essential for crypto investors to monitor developments in this space.
The correlation between tech stocks and crypto Is strengthening
Crypto markets often move in sync with the stock market, especially with major tech stocks like Nvidia. Investors should keep an eye on the performance of these companies as they could signal potential moves in bitcoin and altcoins.
Market sentiment can shift rapidly
The DeepSeek situation illustrates how a single piece of information—such as concerns over China’s AI capabilities—can trigger a market-wide reaction. Staying ahead of sentiment shifts by following institutional activity, ETF flows, and major economic news can help investors avoid being caught off guard.
Key support levels to watch
At the time of writing, bitcoin is hovering around $102,500, with critical support between $95,000 and $90,000. If BTC breaks below this range, the next leg down could be severe. On the flip side, a recovery in tech stocks could stabilize crypto prices in the short term.
Conclusion
DeepSeek’s impact on both traditional and crypto markets serves as a reminder that external factors like advancements in AI can drive unexpected volatility. As Bitcoin’s correlation with tech stocks grows, investors must expand their analysis beyond crypto trends and consider macroeconomic and technological developments.
The market will be watching whether DeepSeek’s claims about cost-efficiency and chip usage hold up. If proven true, this could signal a major shift in AI development and its economic implications. If not, a market rebound might be in store.
Victor Solomon is a crypto analyst at Crypto Asset Buyer (CAB). Over the years, Victor has gained valuable expertise in market analysis, risk management, and community management within the cryptocurrency ecosystem. The founder of Soluvic Crypto Hub, a crypto community where he equips newbies in the space, Victor’s mission is to empower individuals to uncover opportunities and safely navigate risks in the blockchain industry. Victor’s academic foundation includes a BSc. (Ed) in Mathematics, a credential that underpins his strong analytical and problem-solving abilities. Currently, he is expanding his technical expertise as a Software Development student at Brigham Young University. He is an Ex African Manager of Newscrypto.
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