DeepSeek Shakes Up the AI Market, Challenging American Dominance and Sparking New Opportunities for Crypto

DeepSeek's R1 model has sent shockwaves globally because of its ability to match the performance of competitors like OpenAI's o1-mini while using fewer resources and far less money.

DeepSeek, a Chinese AI company, has made waves with the launch of its R1 model, which has raised questions about the cost-effectiveness of AI and its implications for the tech and crypto markets.

DeepSeek’s success stems from its ability to build a competitive AI model without access to advanced U.S. chips. Despite U.S. sanctions banning the export of Nvidia’s top-tier H100 chips to China, DeepSeek found a way to work around this restriction by using the less powerful H800 chips instead.

According to Artificial Analysis, DeepSeek delivers results that outperform even some of the leading AI models from Google, Meta, and Anthropic. This has led to concerns about whether the estimated $1 trillion AI investment over the next few years will yield sufficient returns.

Goldman Sachs had already warned as early as August 2024 that AI spending might be excessive, and DeepSeek’s ability to achieve such feats with minimal resources has now amplified those doubts.

Adding to the hype, DeepSeek’s founder, Liang Wenfeng, a hedge fund manager who started dabbling in AI as a hobby, has taken an unorthodox approach by offering DeepSeek’s assistant and underlying code for free.

This move starkly contrasts with Western competitors, who rely heavily on commercialization and paywalls to recoup their high development costs. Liang’s assertion that “AI should be affordable and accessible to everyone” positions DeepSeek as a disruptor not only in technology but also in business models.

However, despite the hype, DeepSeek also faced a cyber-attack on its debut day, highlighting vulnerabilities in its infrastructure and raising questions about the company’s preparedness to scale.

One of the most pointed allegations comes from speculation that DeepSeek might not be fully transparent about its hardware capabilities. Elon Musk suggested that DeepSeek “obviously” possesses approximately 50,000 Nvidia H100 chips despite U.S. export controls that restrict their sale to China.

Musk’s comment implies that DeepSeek may have circumvented these sanctions, either through undisclosed channels or by acquiring the chips before restrictions tightened.

If true, this could undermine claims that the R1 model achieved its benchmarks using only the less capable H800 chips, which were explicitly designed as a downgraded alternative for the Chinese market.

Doubts also linger about the company’s reported development costs. ZaStocks, a financial commentator, highlighted the implausibility of building a large language model of DeepSeek’s calibre for just $5.6 million.

“You can’t even buy a beachfront home in California for $6,000,000, but apparently, the trustworthy CCP built a better LLM than Meta for that price,” he quipped, referencing China’s history of overpromising on technological advancements.

DeepSeek.I’m not buying it. Yes, they have a great model but the cost just doesn’t add up.You can’t even buy a beach front home in California for $6,000,000 but apparently the trustworthy CCP built a better LLM than Meta for that price.China has a long history of lying…

ZaStocks also noted that U.S. tech companies like Meta and Google have historically admitted to overspending on AI to avoid falling behind. DeepSeek’s ability to match or outperform these firms with limited resources seems to defy this industry norm.

As ZaStocks put it, “There’s no shot they’d admit to the actual cost of this LLM because it wouldn’t add up with the limited technology they’re able to access (legally).”

The unveiling of DeepSeek’s advanced AI capabilities, promising high performance with reduced hardware requirements, also raised questions about the sustainability of GPU-dependent industries, triggering a ripple effect of uncertainty.

Crypto mining firms bore the brunt of the fallout. Riot Platforms (RIOT), a leading Bitcoin miner, saw its shares plummet by 15.5% on Jan. 27, while Cipher Mining (CIFR), another key player in the sector, faced a sharper decline of 25%.

The turbulence wasn’t confined to mining stocks. AI-focused crypto tokens, a niche but growing segment of the market, also faced a significant sell-off.

Tokens like Render (RENDER), which facilitates decentralized GPU rendering, dropped 11% over the last seven days. Similarly, The Graph (GRT), a blockchain indexing protocol, and Artificial Superintelligence Alliance (FET), which integrates AI and blockchain to create autonomous agents, declined by 15% and 14%, respectively.

The downturn in both crypto mining stocks and AI-focused tokens highlights their deep reliance on Nvidia’s GPUs, or graphics processing units, which are specialized chips designed for parallel processing.

GPUs are critical for handling the intensive computational tasks required in industries like cryptocurrency mining and AI. For example