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Crypto Market Slumps Amid DeepSeek AI Release and Macroeconomic Pressures
The total crypto market cap has slipped by over 5% in the last 24 hours, sinking to $3.59 trillion. This marks one of the sharpest sell-offs in recent times, with Bitcoin dipping around 5% to trade at $99,800 levels and Ethereum tumbling 7.5% to hover around $3,100.
Understanding the Recent Decline
The immediate trigger for this decline appears to be the release of DeepSeek R1, an innovative AI model unveiled by China’s DeepSeek lab. This open-source large-language model has been described as a major milestone for artificial intelligence, with Marc Andreessen calling it “AI’s Sputnik moment.”
Deepseek R1 is AI’s Sputnik moment.
DeepSeek R1’s efficiency has rattled the market for AI-related crypto assets, with investors reassessing the value of tokens tied to GPU-intensive operations. This sell-off created a ripple effect, spilling over into the broader crypto market and pulling down even mainstream assets like Bitcoin and Ethereum.
Key Factors Contributing to the Sell-Off
- Liquidations: Nearly $942 million in futures positions have been liquidated, with an overwhelming $830 million of these being long positions.
- Macroeconomic environment: The U.S. dollar index has climbed to 107.74, making Bitcoin and risk assets less attractive.
- Upcoming Federal Reserve meeting: The market remains on edge, as even subtle hints from Chair Jerome Powell about future tightening could add to the uncertainty and further pressure on the already overheated market.
Deciphering Trump’s Executive Orders
President Trump’s executive order on Jan. 23 could mark a turning point for the crypto industry. The order aims to clarify crypto regulations, encourage innovation, and establish the U.S. as a global leader in digital assets.
The creation of the Presidential Working Group on Digital Asset Markets will focus on developing a single set of Federal rules for how cryptocurrencies operate in the U.S. The Working Group has also been tasked with evaluating the creation of a “strategic national digital assets stockpile.”
What’s Next for the Crypto Markets?
While the sell-off has left investors uneasy, some prominent crypto analysts are still maintaining a bullish long-term outlook. Michaël van de Poppe believes that the worst of the dip may already be behind us, and Ethereum’s performance relative to Bitcoin could improve in the near future.
However, the outlook isn’t without its challenges. Aaron Crypto has highlighted that macroeconomic factors remain a key source of pressure on the crypto market. While both analysts strike an optimistic tone about the medium to long-term prospects of the market, it’s essential to remain cautious in the short term.
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