Why is China's DeepSeek Causing Markets to Crash?

• AI startup offers efficient and low-cost models.
• Challenging big tech with accessible innovation.
• Geopolitical and market implications of AI efficiency.

The artificial intelligence industry is witnessing a significant turnaround with the entry from DeepSeek, a Chinese startup that, after just one year of operation, is already challenging big names in the sector. Founded in 2023 by Liang Wenfeng, the company has stood out for its open-source AI models, which allow for inspection and improvement by the developer community. This innovative approach culminated in its chatbot app, which quickly climbed to the top of the download charts in the United States.

DeepSeek's differential lies in its ability to explain the reasoning behind each response, contrasting with other chatbots available on the market, such as OpenAI’s ChatGPT. The company claims that its R1 model offers performance comparable to OpenAI’s best products, at a significantly lower cost. Such efficiency calls into question the need for large investments in advanced hardware, challenging even giants like Nvidia in the supply of AI accelerators.

The implications of this innovation are vast and are already beginning to affect the global technology market. With the effectiveness of the DeepSeek model, the stocks of technology companies around the world have suffered significant declines, as investors recalculate the impact of this new competition. Liang himself commented on the technological advance: “More investment does not necessarily lead to more innovation. Otherwise, large companies would take over all the innovation.”

DeepSeek’s emergence has also raised geopolitical concerns, particularly in the United States, where restrictions on exports of advanced semiconductors to China are aimed at curbing the country’s technological advancement. However, the startup appears to have overcome these barriers with a focus on efficiency, indicating that the restrictive measures may not be as effective as expected.

Since launching its first model in 2023, DeepSeek has captured global attention not only for its technology but also for its community-driven business model. This strategy has enabled rapid adoption of its software, potentially accelerating the development and adoption of AI on a global scale, even in the face of regulatory and ethical challenges.

The popularity of the app, which reached over 1,6 million downloads by the end of January, exemplifies DeepSeek's ability to penetrate highly competitive markets by offering more affordable and efficient alternatives.

What does this mean for Bitcoin?

If you sold your crypto because of the DeepSeek news, you’re crazy. – Rates are going to drop – The dollar is about to start falling – The US is going to buy Bitcoin – The money printers are heating up – Global liquidity will continue to increase The bull market will resume. Dan Gambardello.

If you sell your crypto because of the DeepSeek news, that's just crazy.

– Rates are going to come down

– Dollar is about to start falling

– US will be buying Bitcoin

– Money printers warming up

– Global liquidity will keep increasing

The bull market will resume.

— Dan Gambardello (@cryptorecruitr) January 27, 2025

The startup DeepSeek, with its innovative approach to artificial intelligence (AI), could have indirect impacts on the market for Bitcoin and other cryptocurrencies, mainly through its technological and economic implications. Let’s explore some possible connections:

1. Efficiency and Reduced Costs in Operations: DeepSeek promotes AI models that are more efficient and cost less to operate. This improved efficiency can be applied to many areas of blockchain technology and cryptocurrencies, such as optimizing mining operations, automated trading, and data analysis. With reduced costs, the barrier to entry for new entrants into the cryptocurrency market can be lowered, potentially increasing adoption and demand for Bitcoin.
2. Adoption of AI Technology in Blockchain Development: DeepSeek’s ability to offer AI at a low cost could encourage more companies and developers to integrate AI into blockchain applications. This could lead to significant improvements in security, transaction efficiency, and predictive capabilities in cryptocurrency markets.
3. Impacts on Market Sentiment and Investments: The introduction of disruptive technologies like DeepSeek’s could change the sentiment of the global technology market and, by extension, the cryptocurrency market. If DeepSeek’s innovations lead to a reassessment of the value of existing technologies, this could reflect on how investors view the value and potential of Bitcoin and other cryptocurrencies, especially in terms of digital infrastructure and technology investment.
4. Geopolitical Influences: Since DeepSeek is a Chinese company that appears to be circumventing US restrictions on technology, its existence and success could affect trade relations and export policies that also impact the cryptocurrency market, especially regarding regulations and restrictions affecting Bitcoin trading and mining in different countries.

While DeepSeek’s direct impact on Bitcoin won’t be immediate, emerging technologies and changes in the AI ​​landscape certainly have the potential to influence it in the future.