"Bitcoin Plunges 6% as China's DeepSeek AI Shocks US Markets"

The Bitcoin price experienced a 6% drop on January 27, 2023, as markets reacted to the launch of DeepSeek, an open-source, highly efficient AI model developed in China. The model, which investor Marc Andreessen dubbed "AI's Sputnik moment," spooked US markets by producing a worthy competitor to American AI firms like OpenAI at a fraction of the cost. DeepSeek was developed on a shoestring budget of just under $6 million using less advanced hardware from semiconductor manufacturer Nvidia.

Tech stocks took a beating, with all of the "Magnificent Seven" — Apple, Nvidia, Tesla, Microsoft, Amazon, Meta, and Alphabet (Google) — seeing losses. Nvidia broke a Wall Street record and dropped nearly 17% on the day. Energy utility stocks also spiraled as they were counting on revenues from more power-intensive computing of US-based models like ChatGPT. Crypto was not spared, with major coins like Bitcoin (BTC) and Ether (ETH) seeing 6% and 7% losses respectively, while some altcoins suffered losses in the double digits.

One of the primary reasons behind this "Sputnik moment" was the surprise factor, as the dominant narrative around AI marked the United States as an industry leader. Just a week prior, 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, according to SMARDEX decentralized exchange founder Jean Rausi. Instead, crypto was a victim of broader market sentiment, with crypto being a risk-on asset and subject to the same market forces that impact traditional finance.

Crypto investors were spooked and sold off, leading to a correlation between Bitcoin and stock prices. An investor note from BitMEX indicated that the correlation between crypto and equities will stick around for a while. Prices have started to stabilize and recover, although crypto mining stocks are still seeing minor losses. While the relatively quick recovery is little consolation to traders who saw hundreds of millions of dollars in long positions liquidated on Monday, some analysts are still optimistic. Andre Dragosch, European head of research at asset management firm Bitwise, posted on X that "the fact that Bitcoin stabilized while the Nasdaq