Why China's DeepSeek is causing crypto market plunge?

The cryptocurrency market is facing a significant downturn, with $BTC experiencing a sharp decline of over 7%. This drop has brought $BTC price below the $100,000 mark for the first time in over 10 days. The decline in Bitcoin's value mirrors a similar trend in the stock market, with the NASDAQ dropping over 3%. This market turbulence follows the launch of DeepSeek, a Chinese artificial intelligence startup, which has quickly become the highest-rated free application on Apple's US App Store, surpassing even ChatGPT.

The Impact of DeepSeek's Launch:

DeepSeek's launch has sent shockwaves through both the cryptocurrency and stock markets. The company's AI model, which is touted as a cost-effective alternative to existing AI technologies, has led to a sell-off in tech stocks, particularly affecting companies like Nvidia, which saw its stock plummet by 17%. This decline in tech stocks has had a ripple effect on the broader market, with the NASDAQ experiencing its largest one-day percentage drop since December 2024.

Bitcoin's Response to Market Turbulence:

BTC, often seen as a "digital gold" and a hedge against inflation, has not been immune to the market's volatility. The cryptocurrency's price drop below $100,000 has raised concerns among investors about the sustainability of its bullish momentum. Despite this, some analysts remain cautiously optimistic, noting that BTC's derivatives metrics have remained stable, indicating that professional traders were prepared for the downturn.

Broader Market Sentiment:

The launch of DeepSeek has also highlighted the growing correlation between the cryptocurrency market and traditional financial markets. As uncertainty in the tech sector continues, investors are becoming more risk-averse, leading to a sell-off in both tech stocks and cryptocurrencies. This trend suggests that the crypto market may face an extended correction if traditional markets do not stabilize.

Conclusion:

While the immediate impact of DeepSeek's launch has been a sharp decline in both BTC and tech stocks, the long-term outlook remains uncertain. Investors are advised to stay cautious and monitor market developments closely. As the global economic landscape continues to evolve, the interplay between traditional financial markets and cryptocurrencies will likely play a crucial role in shaping future trends.