"DeepSeek AI's R1 Shakes Crypto Markets: Bitcoin, Ethereum Tumble Amid AI Reassessment"

China's DeepSeek AI has sent shockwaves through global markets, sparking a sell-off in cryptocurrencies and triggering a broad reassessment of AI investments. The release of DeepSeek R1, an innovative and cost-efficient large-language model, has rattled the market for AI-related crypto assets and pulled down even mainstream assets like Bitcoin and Ethereum.

The immediate trigger for this decline appears to be the release of DeepSeek R1, which has been described as a major milestone for artificial intelligence. Marc Andreessen, a prominent venture capitalist, called it "AI's Sputnik moment." DeepSeek R1 matches or surpasses the performance of leading models like those from OpenAI, but it was built on a modest $6 million budget and uses significantly fewer GPUs.

This breakthrough has rattled the market for AI-related crypto assets as investors reassess the value of tokens tied to GPU-intensive operations. Render (RNDR), Near Protocol (NEAR), The Graph (GRT), and Artificial Superintelligence Alliance (FET) are among the hardest hit, with losses ranging from 7% to 9%. Node.AI (GPU), which is heavily reliant on GPU-based operations, has seen a staggering 20% drop. Altogether, the total market cap of AI-focused cryptocurrencies has shrunk by 8%, now sitting at $38 billion.

The sell-off created a ripple effect, spilling over into the broader crypto market and pulling down even mainstream assets like Bitcoin and Ethereum. The cascading losses can be partly explained by liquidations, a phenomenon that often amplifies price movements. Over the past 24 hours, nearly $942 million in futures positions have been liquidated, with an overwhelming $830 million of these being long positions.

Liquidations of this scale often create a vicious cycle — falling prices force more liquidations, which in turn accelerates the downward spiral. As a result, the market goes into a freefall. At the same time, the macroeconomic environment is adding more pressure. The U.S. dollar index, which measures the dollar’s strength, has climbed to 107.74. Historically, a stronger dollar tends to weigh on Bitcoin and risk assets, as it makes them less attractive.

Amid this, investors are now looking ahead to the Federal Reserve’s Jan. 29 meeting,