sport football: What China’s DeepSeek AI Means for Crypto

January 29, 2025 | Listen Online | Read Online

What China's DeepSeek AI Means for Crypto

On Monday, the world woke up to a new artificial intelligence (AI) model out of China.

And the news sparked a broad selloff across just about all markets. Nothing was spared. Stocks, gold, commodities, and crypto all went lower.

The culprit?

Chinese startup DeepSeek announced a new AI assistant called R1. The company claims it built its AI model for just shy of $6 million, yet its performance meets – and in some cases exceeds – the performance of ChatGPT.

To put that in perspective, it's estimated that Open AI, the company that owns ChatGPT, will spend $5 billion this year on its AI operations.

The news that such an advanced AI model could be built so cheaply forced the market to ask itself if American AI stocks were getting left behind by China.

With many of these stocks priced for perfection, it caused a mammoth amount of selling, sending the U.S. stock market into a temporary tailspin.

The S&P 500 and Nasdaq indexes fell as much as 3.4% and 6%, respectively on the news.

Bitcoin briefly fell below $100,000 before rebounding. Meanwhile, established cryptos like Ethereum, Solana, and Dogecoin have fallen as much as 12%, 18%, and 14%, respectively, since the announcement by DeepSeek.

If true, the news from DeepSeek is a game changer for AI. And investors in Nvidia, Broadcom, and the other major chipmakers should be worried if AI companies can do more with less expensive chips.

But not us as Digital Asset Daily.

Today, I'll tell you why – despite the volatility ripping through the markets – investors in the digital asset class have nothing to fear. In fact, this type of pullback is nothing we haven't seen before.

Crypto is still on a trajectory to reach a size and scale that will make your head spin. So the most important thing you can do right now is stay rational.

A Cheaper Form of AI

DeepSeek develops AI models built on opensource technology. That means the developer community at large can inspect and improve the software.

The company's R1 mobile app surged to the top of the iOS App Store download charts in the United States after its initial release in early January.

According to reports, R1 distinguishes itself from chatbots like ChatGPT by articulating its reasoning before delivering a response to a prompt.

The company has already granted licenses to individuals interested in developing chatbots using its technology.

It bears repeating: What really rattled the markets was how cheap it was for DeepSeek to develop and train the R1 chatbot.

According to the company, R1 cost just $5.6 million to train using lower-grade Nvidia chips. This is just a fraction of the projected 2025 AI spend by U.S. Big Tech, which research firm Gartner estimates will be around $200 billion.

Now, can we believe a Chinese startup actually built an entire AI model as good as, and in some cases better than, ChatGPT for under $6 million?

It's dubious. But Wall Street and Big Tech are operating under the assumption it's true. So for now, let's assume it is. That has huge ramifications for chipmakers, including Nvidia.

Companies like Meta (parent company of Facebook) and Microsoft have committed $65 billion or more this year to capital expenditures (capex) – mainly to build out AI infrastructure.

Now, we have a Chinese startup claiming it can build an AI model as good as – if not better than – ChatGPT for about 90% less than what it cost ChatGPT.

Can you see why fear is roiling the markets?

AI chipmakers like Nvidia, Broadcom, and Oracle took the brunt of the carnage. Since Monday, they're down 17%, 17% and 14%, respectively, from their all-time highs.

The bad news is… They may slide even further.

Right now, AI chipmakers are trading at wildly insane valuations. You can see that by looking at their price-to-earnings (P/E) ratios. This metric tells us how much investors are willing to pay for every dollar in earnings.

As of publication, Nvidia trades at a historic P/E ratio of 46. That means you're paying $46 for every $1 in earnings.

That's priced for perfection. And DeepSeek just put a blemish on Nvidia's outlook.

Think about it… If you're Microsoft or Meta, why would you outlay $65 billion per year on AI infrastructure to Nvidia and other chipmakers… When you could pay for similar technology that the Chinese are using at a fraction of the cost?

Since the launch of ChatGPT in late 2022, AI has been the biggest narrative in the stock market. Nvidia briefly became the world's largest company by market cap because of the exploding demand for its high-end chips that help train AI models.

Over one weekend, DeepSeek turned that entire narrative on its head.

While competition is healthy for the space overall… If AI models require cheaper chips that require less energy than the current top-of-the-line chips used in America…

That's bearish for chipmakers over the short term and the companies that provide data centers with energy. And so they will likely see their share prices drop even lower over the coming months.

That begs the question: If this has nothing to do with bitcoin, why did it sell off?

Why Bitcoin Sold on the DeepSeek News

As I've written in the past, bitcoin is one of the most liquid assets in the world.

It trades non-stop… 24 hours per day… seven days per week… 52 weeks per year… with no breaks on weekends or holidays.

Since bitcoin offers instant liquidity, it's one of the first assets traders panic-sell, especially when the equities markets are closed.

This causes a great deal of volatility in the crypto markets – even when the news is unrelated to crypto.

Traders will sell out of fear and buy back in when they believe the coast is clear.

We saw that over the past three months. Bitcoin has traded in a range between $91,000 and $107,000. That's a 15% swing from peak to trough in just a week.

On top of that, many traders buy bitcoin using insane amounts of leverage. So when bitcoin drops due to traders looking to gather liquidity, it triggers liquidation sell orders from overleveraged bitcoin buyers.

Again, this brief bout of volatility has nothing to do with crypto being threatened by the DeepSeek news. Instead, the Big Money that got overexposed to overvalued AI stocks is on the hunt for liquidity to cover what must be massive margin calls on their AI stock positions.

I don't think the selling is over. So we may see some more volatility ahead. The key to remember is this is a temporary problem. Not a long-term problem. That means it's a buying opportunity for crypto.

Another Buying Opportunity

Friends, the DeepSeek story has nothing to do with bitcoin or crypto. What we saw earlier this week was a temporary rush for liquidity. And that's creating a buying opportunity for us.

Over the years, we've used these rushes to liquidity to our advantage.

During the COVID-19 pandemic, we saw bitcoin crash more than 50%. Meanwhile, I pounded the table to buy more. Bitcoin rocketed from a low of $3,782 during the depth of the pandemic to an all-time new high of $69,000 in November 2021.

And that 1,900%-plus gain came during a hostile regulatory environment.

Today, we have a pro-crypto president, backed by a pro-crypto Congress, and supported by a pro-crypto administration. And they're just getting started.

Last week, President Trump signed a new executive order titled "Strengthening American Leadership in Digital Financial Technology."

The order establishes the President's Working Group on Digital Asset Markets to strengthen and promote U.S. leadership in digital finance.

Now that the doors are open, bankers are falling over themselves to offer crypto services.

On the same day he established the Working Group, President Trump also directed the Securities and Exchange Commission (SEC) to repeal Special Accounting Bulletin (SAB) 121.

That means banks can now custody, create financial products around, and trade crypto.

Top executives from Bank of America, Morgan Stanley, and Goldman Sachs have all said they are interested in offering crypto products and services to their clients.

Meanwhile, fund managers are banging down the door of the new crypto-friendly SEC to do business.

In just one week, ProShares, CoinShares, and REX-Osprey filed a combined 16 applications for new crypto ETFs. In total, these firms manage $90 billion in assets.

The applications include ETFs for Solana (SOL), Ripple (XRP), and Dogecoin (DOGE), among others.

In the weeks ahead, I expect major players like BlackRock, Fidelity, and Franklin Templeton to file more crypto ETFs on top of their spot bitcoin and Ethereum funds.

Friends, the future is bright for the digital asset class. So there's nothing to worry about. This is just the typical volatility inherent with crypto.

As for the stock market…

If the Chinese have truly figured out a way to make AI models on the cheap, you don't think we will figure that out, too?

I can guarantee you U.S. tech firms are working on this. And as I always say, never ever bet against America.

So let the world panic.

If it makes financial sense to you, consider buying the dip. And if you're already fully allocated, just turn off your computer. Go about your life. And don't worry.

This is not the end. It's just another blip along the way to all-time new highs.

Let the Game Come to You!

Big T