Week in AI: DeepSeek’s Rise Shakes Markets & U.S. AI Dominance

The artificial intelligence industry had a rocky week when DeepSeek, an AI model built in China, sent tremors through the sector by equaling OpenAI’s performance—at a fraction of the price.

This occurrence has funneled discussions about U.S. tech dominance into overdrive and sparked some market volatility, with AI-related stocks taking a noticeable hit. Clouding the situation further, Trump’s recent order for a “digital asset stockpile” threw investors for a loop, while famous figures like John McAfee have surfaced, pushing AI-driven cybersecurity solutions.

Ninety percent of AI tokens are currently in the red, and the sector’s total market cap has dropped 9.5% to $43.9 billion. This has happened in spite of the substantial recent advancements in AI. And what appears to have investors spooked is the prospect that tomorrow’s AI will not be the cash cow that today’s investor base anticipates.

The previous week was especially hard for cryptocurrencies centered around artificial intelligence. The total market cap for the AI sector plummeted to $43.9 billion, which is a 9.5% drop, as investor uncertainty took hold. Bitcoin dominance soared to 58.3%, which suggests that capital rotated out of the riskier AI assets and into Bitcoin, which is often viewed as a relatively safe asset in times of market turbulence.

Artificial intelligence is not a hype; it’s a fundamental shift of computing. This is clear for our top level AI infrastructure, or what we call the AI “assets.” But even within our core AI assets, the downturn we are witnessing now is pretty widespread. To highlight this point, let’s take a look at our top level 10 AI tokens. Of these 10, we only have one major token posting any sort of gain—DeXe. And even here, the gain is pretty mild in the context of what we might have expected or hoped for AI tokens a few months back when the price recovery was pretty clear across many other sectors in crypto.

The biggest story of the week was DeepSeek, a Chinese-developed AI model that has allegedly matched OpenAI’s performance while running at 98% lower costs. This development has set off a speculative frenzy about China’s ability to dethrone the U.S. in artificial intelligence. And it has some folks wondering if the App Store charts, which DeepSeek has topped, might be a better indicator of AI’s democratization.

What renders DeepSeek particularly disruptive is that it is open-source, enabling developers to use the model without restriction. This is pretty much the opposite of what OpenAI does. Indeed, OpenAI’s whole business model is based on keeping its stuff secret and making money from it. Yet in the long run, is that a sustainable strategy for the United States?

After DeepSeek’s success, tech stocks took a dive. This reflected investor anxiety that U.S. AI companies might not hold onto their number-one spot. Many see China as a rising AI power, and this success is bound to have some effect on the global tech dynamic.

Although DeepSeek’s ascendancy captured most of the attention, a second and equally important development was a new executive order from Donald Trump concerning a digital asset stockpile. Market participants had begun to anticipate the move; in fact, many were expecting it to drop at any moment.

Most participants, including industry insiders, saw the order as a potential bullish signal for the crypto industry, one that could stir governmental involvement and investment in blockchain-based AI solutions.

Nevertheless, the order’s specifics fell short of fulfilling hopes and left investors feeling let down. Rather than providing a signal of substantial backing for digital assets, the initiative offered little in the way of clear, forthcoming directives. These would-be directives concerned the integration of AI and crypto/digital asset technologies into the national policy framework. The lack of clarity on this promising front made for an even more negative sentiment across the week’s overall AI sector performance.

Although the overall market was down, certain cryptocurrencies linked to artificial intelligence managed to outperform. One of the top performers was Delysium (AGI), which rocketed 28.8% higher in value. Why? Investors potentially see promise in something called “decentralized AI infrastructure,” a nascent concept that combines two buzzworthy ideas—decentralized finance and AI.

At the other end of the spectrum was Node AI, which endured the steepest drop, plunging 34.9%. That made it the worst-performing AI token of the week. The sharp sell-off in Node AI underscores the volatility that AI-related assets are experiencing, especially during this period of competitive pressure from new models like DeepSeek.

The complete AI sector sits at 20th place out of 22 narratives that DeFiLlama follows, showing just how weak the investor sentiment is towards this narrative when compared to other blockchain sectors.

The U.S. must work harder than ever to keep in front. China’s AI industry is advancing, and its tech companies are coming on strong. DeepSeek’s capacity to take on OpenAI and come up with something similar, yet at a far lesser cost, could be seen as a sign that over here, we’ve got something to worry about.

Many Western AI models are monetized through paid access, but DeepSeek is not one of those models. It is open-source, which means it is accessible to developers around the world. The potential for further innovation here is enormous. And this approach could also have implications for the business models of leading U.S. AI firms.

Already intense geopolitical tensions may drive up the costs and risks of the U.S.-China tech rivalry. DeepSeek’s success raises fundamental questions about whether the U.S. can hold on to its crown as the top AI maker and lead in the next AI chapter. If not, what must the U.S. do to adapt in a competitive AI landscape?

Over the next few weeks, we will find out whether AI-related tokens and stocks can win back investor confidence. Watch these factors: U.S. firms’ responses to DeepSeek’s challenge; the emergence (or lack thereof) of regulatory clarity around AI-run digital assets; and capital flows—are we still mostly funding AI tokens, or are we now retreating into the safe haven of Bitcoin?

The AI sector finds itself currently under pressure. Nevertheless, its long-term potential remains robust—especially because the model advancements and decentralized AI infrastructure, as well as real-world applications, continue to evolve.

Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.

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