DeepSeek’s AI Breakthrough Triggers Fears In Tech Sector, Impacting Bitcoin Prices

As January draws to a close, the cryptocurrency market has experienced a significant downturn, with Bitcoin (BTC) and other digital assets suffering losses attributed to a broader sell-off in the technology sector. 

Bitcoin’s price fell 3% to $101,400, with earlier lows reaching $97,750. The CoinDesk 20 index, which tracks a weighted average of various cryptocurrencies, recorded a 7% decline, reflecting the overall market’s cooling after reaching record highs earlier this month.

The tech-heavy Nasdaq composite index also faced a downturn, dropping over 3%, influenced by concerns stemming from a Chinese startup, DeepSeek. 

The company recently announced the development of a competitive artificial intelligence model at a fraction of the cost of existing solutions, raising alarms about potential shifts in US dominance in artificial intelligence (AI) technology. 

This news has sparked fears regarding Big Tech’s spending on artificial intelligence models and data centers, further exacerbating the sell-off in tech stocks in the United States market.

In premarket trading, shares of major cryptocurrency exchanges like Coinbase and MicroStrategy fell about 2% each. Bitcoin mining companies took even larger hits; Core Scientific saw its shares plummet by 21%, while Terawulf and Iren (formerly Iris Energy) lost 16%. 

The correlation between the cryptocurrency market and the tech sector remains strong, as noted by Standard Chartered analyst Geoff Kendrick, who pointed out that Bitcoin is currently more closely aligned with movements in the Nasdaq than with traditional safe-haven assets like gold.

The market’s volatility was further driven by significant liquidations among traders who had bet against a downturn. Over the past 24 hours, more than $250 million in long liquidations occurred, forcing leveraged traders to sell their Bitcoin holdings to cover losses. 

This wave of selling coincided with a mixed market reaction to President Donald Trump’s recent executive order on cryptocurrency, which had generated anticipation in the lead-up to its release but failed to meet all investor expectations.

Many traders expressed disappointment that the executive order did not establish a dedicated stockpile of Bitcoin, a term that implies a more passive approach to holding assets, rather than an active strategy of regular purchases. 

Kendrick emphasized that the current market dynamics position digital assets to be particularly vulnerable to sharp sell-offs, regardless of whether the driving force originates from within the crypto space or external markets like tech. 

With the uncertainty surrounding the executive order now resolved, the market has shifted its focus to the upcoming Federal Reserve meeting, set to conclude on Wednesday.

Market strategist Joel Kruger of LMAX noted that investors are nervously anticipating the Fed’ stance, hoping for a more accommodative approach while fearing that the central bank may not adopt the dovish tone the markets desire. 

Despite the recent price declines, Kruger reassured investors that the overall trend in Bitcoin remains positive, stating, “When we look at the Bitcoin chart, there is nothing bearish about the price action.”

Featured image from DALL-E, chart from TradingView.com