"AI Shock: Bitcoin Plummets 6% as China's DeepSeek Model Unnerves Markets"

Bitcoin and other cryptocurrencies experienced a significant drop on January 27, with the Bitcoin price falling by 6%. This decline was not an isolated event but rather a response to the debut of China's open-source, highly efficient AI model, DeepSeek. The model, developed on a shoestring budget of just under $6 million using less advanced hardware from semiconductor manufacturer Nvidia, spooked US markets and sent tech stocks spiraling. 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.

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. 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 equ