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February 2, 2025 by Mishal Ali
- DeepSeek’s breakthrough AI model shakes both traditional and crypto markets.
- Federal Reserve’s unchanged rates provide market relief after initial panic.
- Bitcoin shows resilience, holding above $100k amid uncertainty.
DeepSeek’s R1 reasoning model made waves, triggering panic and shifting valuations across both traditional and crypto markets. Despite launching on Inauguration Day, it took a week for the full implications of DeepSeek’s technology to sink in.
As per IntoTheBlock report, the model’s impressive performance at one-twentieth of its competitors’ cost raised concerns among investors. This, combined with the release of DeepSeek’s open-source code and training methodology, has far-reaching effects on industries heavily invested in AI, including companies like Meta and Stargate.
Market Reactions: Panic and Recalibration
Monday’s market sell-off highlighted the uncertainty surrounding DeepSeek’s entry into the AI market. While DeepSeek’s innovations were promising—operating with 32 billion active parameters compared to GPT-4’s 220 billion—the drastic cost reductions raised eyebrows.
The cheaper AI service charges made many wonder about the future of previous heavy investments, such as Meta’s $60B commitment. As market participants scrambled to reframe valuations, traditional stocks, and crypto saw significant volatility.
As the market absorbed DeepSeek’s breakthrough,a the Federal Reserve’s decision to maintain interest rates provided some stability. With Treasury yields hitting a significant level of 4.79%, fears of “The Great Deflation” loomed.
However, the Fed’s guidance and steady labor market data offered relief. The decision to hold rates steady amid rising inflation and resilient job numbers injected optimism back into the market. Bitcoin, in particular, saw a slight uptick, moving from $102,000 to $105,000, despite initial panic earlier in the week.
Bitcoin’s Resilience and Ethereum’s Struggles
Bitcoin, strong in comparison with traditional markets, was successful in holding at below $100k, a level that relieved concerns in the marketplace. As a contrast to early week outflows, investors moved in for security, and the flagship coin displayed tenacity.
Meanwhile, Ethereum continued to lag, with a negative correlation with Bitcoin. Unlike its long-term enthusiasts, Ethereum is increasingly confronted with Layer 2 alternatives and new Layer 1s fragmenting liquidity, offering a hostile environment for short-term speculators. With most of its owners having long-term, Ethereum’s appeal for active speculators is curtailed.
The coming weeks will most likely make apparent, with the marketplace digesting the deep ramifications of DeepSeek’s achievements and constant direction of the Fed, whether present fluctuations will stabilize into long-term trends, or will cause further marketplace tumult.
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