Americas Crypto Daybook: DeepSeek's Rise in China Sparks Bitcoin and AI Token Decline

By Omkar Godbole (Times are in ET unless stated otherwise) We previously likened bitcoin above $100,000 to a coiled spring poised to release its energy in either direction. Unfortunately for the bullish investors, this energy is now being directed downward due to shifting market sentiment, prompted by concerns regarding the impact of DeepSeek, a low-cost Chinese AI startup, on the U.S. AI sector and technological leadership. During Asian trading, bitcoin dropped to $97,800, with large investors driving prices lower to liquidate over-leveraged buyers on perpetual futures exchanges. Tokens associated with AI and GPU-heavy applications experienced sell-offs of up to 40%, with similar pressure affecting GameFi assets. Nasdaq futures plummeted by 700 points, and shares in chipmaker Nvidia were indicated to be 10% lower in pre-market trading. DeepSeek-R1 is expected to significantly reduce the costs of developing large language models, raising questions about the validity of the high valuations for AI-related companies like Nvidia. Trader and analyst Alex Kruger stated on X, "The issue is that few understand the implications of DeepSeek. It’s challenging to quantify the problem—and when faced with uncertainty, people tend to reduce risk. When this occurs in low liquidity conditions, the market experiences a sharp decline." Kruger prefers not to buy the dip, opting instead to short positions above $100,000, as he anticipates increased volatility from the upcoming Fed meeting and potential political maneuvering by President Donald Trump. The Fed is expected to maintain its wait-and-see approach, adhering to its hawkish December guidance on interest rates. However, there is still hope. Paul Howard, Senior Director at Wincent, believes institutional participation could increase in the coming months. "The next wave of growth will likely come from organic participation by institutions over the next 3-4 months. I would be surprised to see a sharp bounce back to all-time highs before Q2," he said in an email. Howard identified newly launched layer-1 blockchains focusing on security and transactions per second, such as SUPRA, as valuable opportunities. He also emphasized that for long-biased funds, finding alpha in a bearish market involves seeking out low market-cap layer-1s alongside their established peers. Remain vigilant! Key Events to Watch Token Events Conferences: Token Talk By Shaurya Malwa Derivatives Positioning Market Movements: Bitcoin Statistics: Technical Analysis Crypto Equities ETF Flows Spot BTC ETFs: Spot ETH ETFs Source: Farside Investors Overnight Flows Chart of the Day While You Were Sleeping In the Ether