The crypto market had a terrible start to the week and it wasn’t even crypto itself that caused the plunge.
Instead, DeepSeek and the drama around the potential disruption from the latest open-source artificial intelligence (AI) model has caused a collapse in tech and high-growth stocks and that’s correlated to crypto as well.
Bitcoin (CRYPTO: BTC) has fallen 5% in the past 24 hours as of 3 p.m. ET, Ethereum (CRYPTO: ETH) is down 7.7%, and Dogecoin (CRYPTO: DOGE) is down 8.5%. But is a recovery on the way?
The reality for crypto investors is that cryptocurrencies trade in a correlated manner to tech and growth stocks, not independently. So, when the market sells off, it’s not surprising to see crypto down as well.
Today’s market drop is related to DeepSeek, the Chinese AI firm that released a model that competes with the best OpenAI models for a fraction of the cost. And it was allegedly trained for a fraction of the cost of the best foundational models today.
If the DeepSeek model was indeed as cheap as they say, it’s possible the investment needed for artificial intelligence data centers will not be as high as projected, leading to a pullback in spending. That’s not confirmed, but it’s the fear of the market today and fear and uncertainty aren’t things the market likes.
Tech has fueled a lot of the market’s gains over the past two years so it’s no surprise it will fuel its fall as well.
If this is the end of the tech bull run, it may be bad news for crypto. The last time the market fell sharply in 2022, crypto losses outpaced tech losses by a wide margin.
^IXIC data by YCharts
The crypto industry is in a very different position today, but over the past three months there was likely a pull forward of value from regulatory tailwinds. Now, investors are in a “wait and see” moment for new legislation and ultimately innovation on the blockchain. That may take longer than investors have patience for.
Bitcoin and Dogecoin have both benefited from the increase in the value of speculative assets in the past few months. Still, they’ve lost momentum as the market demands proof that tech and growth investments are generating real value. Given the extremely lofty valuation of the market and the lack of value currently being demonstrated by AI, I think the market may see a repeat of 2022.
Ethereum is the one token that should be showing signs of value given the utility that can be built on the Ethereum blockchain, but the recent launch and success of President Donald Trump’s meme coin on Solana has caused investors to question whether the slow speed and high cost of Ethereum is too much to overcome.
I think the blockchain still has a lot of potential, but the tokens that underlie it like Bitcoin, Ethereum, and Dogecoin may not be where the value is created as non-fungible tokens and stablecoins become more popular. Today’s drop may seem unrelated to crypto, but it seemed that way in 2022 as well and the market crashed nonetheless.