Bitcoin Falls Below $100K: The Inevitable Crypto Market Correction or Deepseek?

The cryptocurrency market is experiencing a sharp downturn as of January 27, 2025, with Bitcoin dipping below the critical $100,000 level and altcoins registering losses of up to 11%. This market slide comes after a record-breaking rally, leaving investors questioning the root causes of this sudden decline. Does the Chinese Deepseek AI have anything to do with it? Experts say that it is the primary cause. First, beating down the tech stocks, then causing the falling domino effect over the whole crypto market. Below, we analyze the key drivers behind the crypto market correction.

1. Crypto Market Correction After Bitcoin’s All-Time High

Bitcoin’s rise to an all-time high of nearly $110,000 was driven by bullish sentiment and substantial institutional interest. However, this rapid ascent is now being followed by a classic correction phase.

• Profit-Taking Behavior: Investors who bought into the rally are locking in gains, creating selling pressure across the market.
• Historical Patterns: Cryptocurrencies are known for their cyclical nature, with sharp upswings often accompanied by equally sharp corrections.

This phase highlights the importance of timing in trading and the cyclical volatility inherent to the crypto market.

2. Fear of Tech Stock Sell-Offs Spilling Into Crypto

The cryptocurrency market is increasingly influenced by movements in traditional financial markets. According to recent reports, fears of a sell-off in tech stocks are spilling into the crypto sector.

• Correlation with Equities: Major cryptocurrencies like Bitcoin and Ethereum are showing a stronger correlation with tech stocks, making them vulnerable to broader market sentiment.
• Risk-Off Sentiment: As investors retreat from riskier assets, the impact on cryptocurrencies has been immediate and significant.

This interconnectivity underscores how macroeconomic factors and market trends in traditional finance can ripple into the crypto space. (Source: Coinspeaker)

Furthermore, the rise of Chinese artificial intelligence start-up DeepSeek has shaken global tech markets, raising questions about the future dominance of U.S. companies in AI. On Monday, the launch of DeepSeek’s latest AI model sent ripples through the industry, with tech giants experiencing significant stock losses.

Last week, DeepSeek unveiled its groundbreaking large language AI model, which rivals those of U.S. leaders like OpenAI and Meta in performance but relies on far fewer Nvidia chips. This breakthrough has prompted investors to reassess the financial sustainability of current AI hardware investments, leading to a market shake-up.

Nvidia Suffers Historic Losses as DeepSeek Emerges

DeepSeek’s advancements caused Nvidia, a key player in AI chip manufacturing, to experience a dramatic $300 billion market value loss—the largest single-day drop recorded by any company. This decline reflects shifting investor sentiment regarding the future demand for high-cost AI hardware. Other tech giants were also affected, with Microsoft shares falling 6%, Meta dropping 5%, and European chip equipment maker ASML down 10%. The Nasdaq composite was set to open 4.2% lower, and the S&P 500 index pointed to a 2.4% decline.

The impact extended beyond traditional tech companies. Siemens Energy, which supplies electrical infrastructure for AI, plummeted 22%, while Schneider Electric, a major provider of data center products, fell 9.2%.

DeepSeek: The “Sputnik Moment” of AI

The launch of DeepSeek R1 has been described as a pivotal moment in AI history. Industry experts have likened it to the “Sputnik moment” that spurred the U.S. to intensify its space race efforts during the Cold War. The disruptive potential of DeepSeek’s efficient AI model signals that China is making significant strides in artificial intelligence despite global sanctions and restrictions on its tech sector.

Founded by hedge fund manager Liang Wenfeng, DeepSeek released a detailed technical paper explaining how its model autonomously learns and improves. This innovation demonstrates China’s growing capabilities in the AI race and challenges the assumption of U.S. dominance in the sector.

Market Reaction and Investor Concerns

Monday’s market sell-off was largely attributed to DeepSeek’s announcement. A Tokyo-based fund manager noted that the development has forced investors to rethink their projections for AI hardware spending. UBS reported that U.S. tech companies invested $224 billion in AI infrastructure last year, with expectations for that figure to rise to $280 billion in 2024. However, DeepSeek’s cost-effective approach to AI could reshape these forecasts.

Industry analysts have also highlighted the risks of relying on consensus-driven assumptions about U.S. leadership in AI. Luca Paolini, chief strategist at Pictet Asset Management, emphasized that the event underscores the vulnerability of the current AI investment narrative.

Potential Long-Term Benefits for Chipmakers

While DeepSeek’s efficiency-focused model has caused immediate disruption, some experts argue it could ultimately benefit the AI chip industry. Dylan Patel, chief analyst at SemiAnalysis, explained that reducing the costs of training and running AI models will encourage wider adoption of AI technologies by businesses and consumers. This could lead to increased demand for advanced chips and infrastructure in the long run.

Patel noted that advancements in training efficiency have historically driven innovation in the semiconductor industry. By making AI more accessible, DeepSeek’s innovations could accelerate the scaling and proliferation of AI applications worldwide.

Chinese Tech Stocks Rally Amid DeepSeek Buzz

While the broader CSI 300 index dipped 0.4%, some Chinese tech stocks saw gains fueled by excitement over DeepSeek. In Hong Kong, Baidu shares rose 4%, and Alibaba gained 3%. These movements indicate optimism about the competitive edge DeepSeek’s innovations might give to China’s tech sector.

A New Chapter in the Global AI Race

DeepSeek’s emergence has sparked a paradigm shift in the global AI market. By achieving top-tier performance with reduced hardware requirements, the company has demonstrated that significant innovation can emerge outside the traditional tech powerhouses of the U.S. As the AI industry evolves, the influence of players like DeepSeek will continue to shape the strategies of global competitors.

3. Crypto Optimism Fades After Trump’s Reelection Speech Misses the Mark

The reelection of Donald Trump initially ignited optimism in the crypto community, with expectations of a favorable regulatory environment. However:

• Policy Silence: Trump’s inaugural address made no mention of cryptocurrencies, creating unease among investors hoping for supportive policies.
• Impact on Sentiment: This uncertainty has tempered market enthusiasm, contributing to the decline in prices.

Read Also: The Countries, Cities, Mavericks Betting Big on Bitcoin Reserve

Market sentiment often responds to the narrative around regulation, and in this case, unmet expectations have added to the bearish outlook.

4. Global Economic Trends Weigh Down on Crypto Prices

The cryptocurrency market doesn’t exist in a vacuum; it is deeply interconnected with global economic trends. Recent developments include:

• Weakness in Global Markets: Asian equities and U.S. stock futures are sliding amidst geopolitical tensions and shifts in technological policy, which have created risk-off sentiment.
• U.S. Dollar Strength: The dollar’s rise, spurred by policy decisions and trade uncertainties, is putting pressure on risk assets, including crypto.

Read Also: Fidelity Forecasts Global Shift Toward Bitcoin Reserves in 2025

As macroeconomic factors tighten liquidity, investors are pulling back from riskier assets like cryptocurrencies.

5. Key Indicators Suggest Crypto Market Correction May Deepen

Technical indicators are painting a bearish picture for Bitcoin and the broader crypto market:

• Resistance Levels: Bitcoin is struggling to stay above key support zones, with increasing supply signaling further declines.
• Oversold Conditions: Indicators like the Relative Strength Index (RSI) suggest heightened selling pressure, although this could lead to a potential rebound if buyers re-enter.
• Volatility Ahead: The convergence of moving averages hints at near-term volatility, leaving traders cautious.

Understanding these technical signals is crucial for navigating short-term market movements.

6. What Crypto Traders Can Learn from Today’s Downturn

This downturn underscores several key lessons for investors:

• Timing and Risk Management: The importance of taking profits during rallies and using stop-loss strategies to mitigate losses.
• Macro Awareness: Keeping a close eye on global economic trends and their impact on crypto markets.
• Regulatory Uncertainty: The need to factor in policy shifts and investor sentiment as significant drivers of price movement.

By adopting a disciplined approach and monitoring broader trends, investors can better position themselves for market fluctuations.

A combination of profit-taking, unmet regulatory expectations, macroeconomic headwinds, and bearish technical indicators drives the current crypto downturn. While the market’s long-term potential remains intact, today’s decline is a reminder of crypto’s inherent volatility and the need for informed, strategic investing.