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January 28, 2025

DeepSeek Throws a Wrench in Crypto Trading Dynamics

DeepSeek Throws a Wrench in Crypto Trading Dynamics

A New Player in the Game

A little something unexpected happened on January 27 – that’s when DeepSeek, a Chinese AI company, decided to drop its R1 model onto the market. It really shook things up. Market confidence took a dive, causing a gigantic $1 trillion dip in the Nasdaq Composite Index. Tech behemoths didn’t escape unscathed either – NVIDIA, for instance, suffered a record $600 billion loss, while Alphabet lost a cool $100 billion. Even Microsoft wasn’t spared, losing $7 billion.

DeepSeek’s R1 model is raising eyebrows worldwide because it seems to defy the long-held assumption that only the wealthiest can afford the best AI models. This R1 model, made at a fraction of the costs used by others, matched the performance of more expensive counterparts. It’s just a tad baffling.

Even Sam Altman, OpenAI’s CEO, chimed in, calling it “invigorating” and too good to be possible at that price. It’s a game changer – or at least that’s what it looks like.

How Did They Pull This Off?

Essentially, DeepSeek seems to have worked out how to break the “unbreakable” barrier. Their R1 model packs some serious capabilities without the supposedly necessary high-end U.S. chips. After all, DeepSeek was banned from getting top-tier Nvidia chips, meaning they had to make do with H800 chips. And yet, they managed to deliver results to rival U.S. giants.

And according to Artificial Analysis, DeepSeek’s findings have put the company ahead of some behemoths like Google, Meta, and Anthropic. This, of course, raises questions about whether all that investment in AI is even worth it. Goldman Sachs isn’t optimistic, they’d rather we not spend that $1 trillion on AI that might not really give us the returns we expect.

The founder of DeepSeek, Liang Wenfeng, a hedge fund manager turned AI enthusiast, is being pretty generous by making the assistant and the code free to everyone. That’s not how it usually goes in the West, where companies like to lock their stuff behind paywalls and share nothing.

Questions Raised

But wait – the other shoe sometimes drops, and this is no exception. DeepSeek’s entry has been met with skepticism – as seen in some of the allegations swirling around. Some of them suggest DeepSeek isn’t fully honest about the hardware it’s using. Elon Musk posted that DeepSeek is working with 50,000 Nvidia H100 chips despite export restrictions.

Was it really all H800s?

Then there’s the question of the $5.6 million development cost – really? People are looking at the numbers, and they see a discrepancy. U.S. companies like Meta and Google have said they might have spent a little too much on AI because they didn’t want to fall behind. If DeepSeek can do just as well with less, it’s confusing to everyone.

The Waiting Game

DeepSeek’s effects went beyond tech stocks like Nvidia. GPU-dependent mining companies and AI-focused tokens also felt the pressure. With rumors of DeepSeek’s capabilities, crypto mining took a hit, and so did tokens like Render, which relies heavily on Nvidia’s GPUs.

But the panic seems overblown, considering AI-crypto is only 1% of the overall crypto market’s value. Some stabilization is appearing, with minor recoveries in AI-related tokens.

There’s also some hope in the form of macro factors. President Trump’s new executive order on January 23 established a unified crypto regulatory structure, explicitly banning central bank digital currencies.

There’s an additional $500 billion for AI research, and that could benefit AI crypto projects that need data centers and power.

The Future of Crypto Trading

DeepSeek’s open-source model could lead to cheaper operational costs for crypto projects. That means more accessible AI trading bots and maybe even better ones.

Also, DeepSeek’s methods could lead to less energy-intensive mining operations, which might be more economically and environmentally viable.

DeepSeek could also encourage a shift toward renewable energy in crypto mining and compel GPU manufacturers to rethink their strategies in light of less demand.

So while DeepSeek’s debut has caused chaos on the surface, it’s also an opportunity for those willing to adapt.

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Egor Romanov
About Author

Egor Romanov is an experienced crypto analyst, professional trader, and author of trading strategies and the Cryptorobotics blog, where he shares his knowledge about cryptocurrencies and financial markets.

Alina Tukaeva
About Proofreader

Alina Tukaeva is a leading expert in the field of cryptocurrencies and FinTech, with extensive experience in business development and project management. Alina is created a training course for beginners in cryptocurrency.

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