On January 20th, Chinese AI firm DeepSeek launched its latest large language model (LLM), and according to early users, it performs just as well—if not better—than its U.S. counterpart, OpenAI.
Okay… so another AI competitor enters the ring. Big deal, right? Well… here’s where it gets interesting. DeepSeek was fully funded by Chinese hedge fund High-Flyer, which started less than a year ago. And the kicker? They claim it only cost them under $6 million to build and they made the model open-source, allowing any user to use the model and build their own applications.
Now, this is where the panic set in. OpenAI took years and billions of dollars to develop ChatGPT, while the U.S. government has done everything in its power to maintain AI dominance. Going so far as to block NVIDIA and Intel selling their best chips to China. Well, things went from bad to worse as DeepSeek claims to build the LLM with NVIDIA older chips, essentially implying that there is a more efficient way to build these models.
Cue market chaos. Investors dumped tech stocks, wiping nearly $1 trillion off global markets, with NVIDIA leading the sell-off. The reason? That the U.S. is losing its edge in AI and that tech valuations might be overstated if AI models can be built much more efficiently than assumed.
This global tech sell-off also reached the digital assets market, with Bitcoin declining by 7% and with many AI-based projects declining even more. But is this price action justified?
First and foremost, we believe the recent sell-off was somewhat of an overreaction. While DeepSeek is indeed an impressive LLM with strong performance, there are doubts surrounding the reported $6 million development cost. It’s important to consider that not all aspects of the story may be entirely accurate.
Although DeepSeek claims to have trained its model on older chips, such restrictions are not foolproof, leaving room for the possibility that more advanced technology was used.
In Bitcoin’s case, our observation is that the Bitcoin drop was an overreaction from traders and investors who saw the Nasdaq and tech stocks drop significantly and might be afraid of a downward trend in tech. Unfortunately, Bitcoin’s price action is quite correlated with the Nasdaq and tech but where most tech stocks haven’t recovered, Bitcoin did. Unfortunately, the news of U.S. tariffs caused Bitcoin to drop further.
Returning to blockchain-based AI projects, we believe these assets were oversold, particularly given that many are open-source. The entry of Deepseek into the market, along with its decision to open-source its model, will likely be a significant advantage. This move is expected to attract more developers and startups to the AI sector, fostering greater competition and driving innovation. While short-term price action may be negative, in the long run, these AI protocols are poised to benefit from increased adoption and technological advancements.