DeepSeek AI’s impact on crypto markets raises questions about Bitcoin and Ethereum’s future amidst regulatory shifts and investor anxiety.
Crypto Sell-Off Sparks Market Concerns
The crypto market experienced a significant dip, with the total market cap dropping by over 5% to $3.59 trillion, per CoinGecko. This marks one of the steepest declines since Jan. 20. Bitcoin, the leading cryptocurrency, saw a 5% drop to $99,800, while Ethereum tumbled 7.5% to $3,100.
Deepseek R1 is AI’s Sputnik moment.
Altcoins, including Render and The Graph, faced even harsher losses, with declines ranging from 10% to 20%. Despite optimism from recent regulatory developments, the market remains unsettled.
DeepSeek AI Triggers Market Shock
The launch of DeepSeek R1, a cost-efficient and high-performing AI model, caused ripples across AI-linked cryptocurrencies. Tokens tied to GPU-based operations, like Node.AI, suffered sharp declines, with some losing up to 20% of their value.
This innovation prompted reassessments of AI-linked tokens, leading to widespread sell-offs and a cascading effect on broader crypto assets, including Bitcoin and Ethereum.
Liquidations Amplify Downward Trend
Massive liquidations followed the market drop, intensifying the downturn. Nearly $942 million in futures positions were liquidated, with $830 million in long positions.
This created a feedback loop where falling prices triggered more liquidations, accelerating the decline. Market volatility heightened as the U.S. dollar index climbed to 107.74, adding pressure to Bitcoin and other risk assets.
Regulatory Moves Add Uncertainty
President Trump’s Jan. 23 executive order titled “Ensuring U.S. Leadership in Digital Financial Technology” introduced significant regulatory changes. Key features include forming a Presidential Working Group on Digital Asset Markets and establishing unified Federal regulations.
The administration also signaled a shift by proposing a “strategic national digital assets stockpile” and explicitly prohibiting Federal actions to create central bank digital currencies. These moves aim to foster innovation but have left the market uncertain about long-term impacts.
Crypto Market’s Path Forward
Despite current turbulence, some analysts maintain a positive outlook. Michaël van de Poppe predicts a recovery, highlighting Ethereum’s potential to outperform Bitcoin.
#Altcoin MCap has retested its Q4 breakout. Lots of capitulation selling is ongoing due to the US stock market meltdown. But I’m not worried, as it’s all just temporary. We have survived the Covid crash, Yen carry trade, and numerous geopolitical wars. I’m saying it again:…
However, macroeconomic factors remain a concern. The Federal Reserve’s Jan. 29 meeting could influence market sentiment, especially if Chair Jerome Powell hints at future tightening.
The crypto market shows signs of resilience, but traders must stay cautious amid ongoing volatility and regulatory shifts.
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