Why China's DeepSeek is causing Bitcoin and crypto market to plunge

Bitcoin (BTC) slipped below $100,000 on Monday as China-based artificial intelligence (AI) model DeepSeek began gaining popularity across the US market, overtaking OpenAI's ChatGPT. DeepSeek's impact also led to rapid declines in the stock market with NASDAQ — spearheaded by Nvidia — diving more than 3%.

Bitcoin, crypto market dip as DeepSeek gains ground

The crypto market experienced turbulence following the rise of China's new AI startup, DeepSeek, which is trending across the global investment market.

DeepSeek, a newly launched AI chatbot and potential rival to OpenAI's ChatGPT, caught users' attention one week after the release of its open-source language model, R1, on January 20. It tops the chart as the highest-rated free app for US and Chinese users on the Apple App Store.

The hype around DeepSeek began after ScaleAI's CEO Alexandr Wang commended its effectiveness compared to leading US AI models like OpenAI's ChatGPT.

The popularity of DeepSeek led to a market-wide sell-off in US tech stocks and the crypto market. A major cause of this decline is the alleged low cost it took to build the model.

The Chinese AI company claims to have spent only $5.8 million to train its models, which is very tiny compared to its US counterparts. For example, OpenAI has raised a total of $17.9 billion so far to build its models.

Another bone of contention is that DeepSeek allegedly uses fewer chips to build faster and better AI models. Several top tech personnel, including Wang and Tesla CEO Elon Musk, have disagreed with this notion.

Wang stated in an interview with CNBC that he believes China has 50,000 H100 Nvidia chips.

"My understanding is that DeepSeek has about 50,000 H100s, which they can't talk about obviously because it is against the export control that the United States has put in place," Wang told CNBC.

Following the interview, US tech stocks plummeted with Nvidia (NVDA) shedding over $600 billion from its market capitalization in the past 24 hours. Additionally, the S&P 500 wiped out over $1 trillion from its market cap, while the NASDAQ dipped 3% over the same period.

Considering the rising correlation between the US stock market and cryptocurrencies, the crypto market plunged with Bitcoin diving below $100K for the first time since President Donald Trump's inauguration.

If the traditional stock market fails to recover, BTC's price could remain range-bound or decline further due to their rising positive correlation. This could also hinder the much anticipated crypto bull run in 2025.

However, the market could see a recovery if DeepSeek uses more AI chips and higher costs than it claims.

Meanwhile, meme coins named after DeepSeek quickly rallied with the surge in interest for the AI bot.