AI agent tokens have made a stunning comeback after suffering a massive $5 billion loss this week, all thanks to the sudden surge in popularity of DeepSeek.
Challenges have come knocking for DeepSeek, causing a shift in market sentiment and triggering growth in AI-related tokens.
Mounting Pressure on DeepSeek
Alibaba made waves on Wednesday by introducing Qwen 2.5, a superior AI model that supposedly outshines DeepSeek-V3. This revelation cast doubts on DeepSeek's longevity in the AI industry, affecting investor confidence.
Furthermore, OpenAI accused DeepSeek of utilizing "distillation" techniques to train its AI models based on OpenAI's outputs, potentially violating OpenAI's terms of service.
Sam Altman, CEO of OpenAI, expressed, "Deepseek's r1 is an impressive model, but we will be introducing even better models. Having a new competitor is refreshing! Stay tuned for our upcoming releases."
This technique enables smaller models to replicate the performance of larger ones at a lower cost while raising ethical and legal concerns among the AI research community.
Adding to DeepSeek's woes, Italy's data protection authority initiated an investigation into its handling of personal data. Consequently, DeepSeek's app has been blocked from Apple and Google stores in Italy.
Investors Shift Focus to AI Agent Coins
In response to these events, AI Agent coins, which had previously suffered losses, began to rebound. Virtuals Protocol surged by over 8%, while AIXBT and Ai16z saw gains of over 10%, thanks to investors turning towards decentralized AI projects.
The recent market correction follows DeepSeek's rise, which overshadowed AI-focused cryptocurrencies, leading to a sharp dip in their values.
DeepSeek introduced its innovative AI assistant earlier this week, posing a threat to existing models by offering similar functionalities at a lower cost.
The market turmoil triggered a substantial sell-off in US technology stocks, with companies like Nvidia witnessing a $589 billion decline in market capitalization. This, in turn, caused a drop in the stock prices of crypto mining firms and AI-based cryptocurrencies.
As the initial hype subsides, investors are beginning to recognize the potential drawbacks of DeepSeek's new AI model. Additionally, several fraudulent DeepSeek meme coins have emerged on decentralized exchanges, despite DeepSeek's disavowal of any association with these cryptocurrencies. Scammers continue to exploit the hype surrounding DeepSeek, urging caution among investors.