Weekly Institutional Insights: DeepSeek in the Past as Macro Seems to Favor Risk Assets

Feb 3, 2025: Our weekly Institutional Insights explores the latest market developments — market performance, industry news, exchange-traded fund (ETF) flows, trending topics, upcoming events and token unlocks — to help you supercharge your crypto trading.

Enjoy our weekly take on the market!

Weekly Highlight — PCE Muted in January 2025

Source: Bloomberg

The Federal Reserve's key inflation measure remained subdued in December 2024, with real incomes softening, potentially paving the way for interest rate cuts this year. Meanwhile, the core personal consumption expenditures (PCE) price index increased by 0.2% from November 2024 and 2.8% year-over-year, while real disposable income saw minimal growth for a second consecutive month, leading to a drop in the savings rate to a two-year low of 3.8% that could put consumers at risk if incomes decline, according to LPL Financial's chief economist.

On a three-month annualized basis, the core PCE rose 2.2%, the slowest since July, alleviating some inflation concerns. Federal Reserve Chair Jerome Powell indicated that further rate cuts depend upon progress toward the 2% inflation target amid uncertainties surrounding president Trump's policies.

In related data, labor cost growth slowed and consumer spending rose by 0.4% in December 2024, driven by strong demand for durable goods. Fed officials remain cautious about rate adjustments, influenced by a resilient labor market and upcoming revisions to job growth data. Additionally, the economy's GDP grew by 2.3% in the fourth quarter, supported by a significant increase in personal spending.

Weekly Crypto Highlight — Crypto Forgets DeepSeek Crash

On Jan 27, 2025, Bitcoin prices dropped 6% as markets reacted to the launch of DeepSeek, a new open-source AI model from China, which investor Marc Andreessen describes as "AI's Sputnik moment." Developed for under $6 million using less advanced NVIDIA hardware, DeepSeek emerged as a competitor to U.S. firms like OpenAI, unsettling investors and leading to significant losses in tech stocks, including a nearly 17% drop for NVIDIA.

The cheaper, more efficient AI model also negatively impacted energy utility stocks that expected revenue from power-intensive U.S. models. Major cryptocurrencies, including Bitcoin and Ether, fell 6% and 7% respectively, reflecting a broader market sentiment, rather than a direct correlation to DeepSeek.

Despite the volatility, some analysts remain optimistic, noting Bitcoin's stabilization amid ongoing Nasdaq-100 declines. The open-source nature of DeepSeek may foster innovation in AI development, with industry figures suggesting it could enhance cheaper, faster AI systems.

However, privacy concerns surround DeepSeek, with regulatory scrutiny emerging in the U.S. and EU over its data policies. Critics warn it may serve as a Trojan horse for data collection, echoing past controversies with Chinese tech. 

Overall, while DeepSeek's immediate impact on crypto appears limited, its long-term effects on the AI landscape and market dynamics have yet to be fully realized.

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