Key Points
- Chinese startup DeepSeek launched a cost-effective AI model, causing a stir in the Bitcoin, crypto and AI agent economy.
- The launch led to a correction in Bitcoin and AI agent tokens, wiping out $2.5 billion from agent tokens.
DeepSeek, a Chinese startup, recently introduced its latest AI model, posing a challenge to leading Large Language Models in the U.S. The cost-effective model has sent shockwaves through the Bitcoin, crypto, and AI agent market.
Impact on Bitcoin and AI agent tokens
Following the launch, the application gained significant traction on the Apple App Store, leading to a correction in Bitcoin and AI agent tokens. The launch erased $2.5 billion from agent tokens.
Bitcoin, along with altcoins and crypto tokens, are trying to recover from the impact. Bitcoin’s trading value rose above $102,000 following the launch.
AI market cap and token decline
The market cap of AI agent tokens saw a 12% correction, dropping to $10.125 billion, according to data from CoinGecko. The top three tokens in the category, Artificial Superintelligence Alliance (FET), Virtuals Protocol (VIRTUAL), and ai16z (AI16Z) experienced significant declines in the past week.
The AI market cap fell from $12.9 billion to $10.2 billion as the Chinese LLM promised 14 cents per million tokens against GPT-4’s $15. This has led to concerns among U.S.-based crypto traders about a potential widespread market correction.
The Venice Token (VVV) project, which focuses on AI token distribution, hit a $1 billion valuation within 2 hours of the airdrop. The VVV token was trading at $13.23 with a market cap of $304.16 million.
Bitcoin and U.S. equities correlation
Bitcoin and U.S. equities have shown a strong correlation in the current quarter. The 30-day rolling Pearson correlation between Bitcoin, the S&P 500, and the NASDAQ was identified as 0.7.
Bitcoin traders are closely watching the U.S. Federal Reserve’s interest rate decision. The sentiment has shifted towards derisking ahead of the announcement, indicating a potential decline in Bitcoin price.
DeepSeek’s launch had a negative impact on NVIDIA, and Bitcoin was not spared. The event overshadowed the “Trump effect” on Bitcoin, as events in tech and AI continue to cause fluctuations in Bitcoin and altcoins, as well as equities.
Effect on altcoins
Data from SoSoValue, an AI-powered crypto investment platform, shows that the DeFAI and AI agents category corrected the most in response to DeepSeek’s arrival in the U.S. market. The DeFAI sector’s market cap corrected 28.73% in 24 hours.
In the AI agents category, leading projects such as Fartcoin and mainstream AI tokens, ai16z, AIXBT, and AI Rig Complex were corrected in double digits. The meme coin sector also suffered a decline in its market capitalization following DeepSeek’s release.
Expert insights
Jawad Ashraf, CEO of Vanar, a decentralized Layer 1 blockchain focused on RWA adoption, believes that crypto’s short history and frequent “regime shifts” offer limited data to train predictive AI models for portfolio management.
Ashraf also mentioned that geopolitical wildcards compound the challenge, introducing unexpected market conditions that AI can’t easily anticipate, making human oversight and risk management essential.
Discussing the rivalry between Huawei and NVIDIA, Ashraf cites the example of an “arms race.” The competition between the two giants continues to weigh heavily on Bitcoin and crypto, given the impact of AI-related developments on the sector.
Bitget Wallet COO Kan believes that the AI agents sector could continue to expand in the first half of 2025, potentially reaching a market capitalization of $20 to $25 billion. However, he also warns traders of a potential market correction.
