Key points:

Global market sentiment: Asian markets followed Wall Street’s sharp decline, with the S&P 500 and Nasdaq 100 dropping due to concerns over AI company valuations.
DeepSeek’s disruption: A Chinese AI startup, DeepSeek, introduced a groundbreaking open-source model, raising questions about the future of US tech giants.
US policy shifts: President Trump announced tariffs on foreign-produced semiconductors, pharmaceuticals, and metals to encourage domestic manufacturing.
Treasury leadership: Scott Bessent was confirmed as Treasury Secretary, signalling potential shifts in US economic policy.
Market movements: Treasury yields fell, the US Dollar stabilised, and commodities like gold and oil saw mixed performance.
Crypto developments: Eric Trump announced tax exemptions for US-based crypto projects to boost blockchain innovation.
Bitcoin and crypto market decline: Bitcoin dropped below $100,000 as DeepSeek’s rise disrupted global markets, including tech and crypto sectors.

Global market sentiment: A shift in confidence

Global markets are facing a wave of uncertainty, with Asian shares retreating after a tough session on Wall Street. The S&P 500 and Nasdaq 100 both took a hit on Monday, driven by growing concerns over the sustainability of US tech company valuations. The trigger? A Chinese AI startup, DeepSeek, unveiled a new open-source AI model that has investors questioning whether the high valuations of US AI companies are justified.

Adding to the unease, many Asian markets, including China and South Korea, were closed on Tuesday for Lunar New Year celebrations, leaving investors with limited opportunities to respond to the unfolding developments. Meanwhile, US equity futures suggested a flat opening, reflecting a cautious mood among traders.

DeepSeek’s disruption: A game-changer for AI

DeepSeek, a Chinese AI startup, has quickly become the centre of attention in the tech world. The company recently launched its open-source language model, R1, which has gained massive popularity in just a week. It’s now the top-rated free app on the Apple App Store in both the US and China, signalling its rapid adoption and appeal.

What makes DeepSeek’s model so disruptive is its accessibility. By offering a cost-effective, open-source alternative, the company has introduced a new level of competition in the AI space. This has raised concerns among investors about the future of US tech giants, particularly those heavily invested in AI. The shift from expensive hardware to more efficient software solutions could accelerate profitability in the AI industry, but it also introduces significant short-term volatility.

Also Read: Geopolitical risks and economic opportunities: A market overview on global trends

US policy shifts: Tariffs and new leadership

In a move to strengthen domestic manufacturing, President Trump announced plans to impose tariffs on foreign-produced semiconductors, pharmaceuticals, and certain metals. The goal is to reduce reliance on imports and encourage companies to produce goods within the US. While this policy could boost domestic industries, it may also lead to higher costs for consumers and potential trade tensions with key partners.

On the leadership front, Scott Bessent was confirmed as the new Treasury Secretary. Known for his support of gradual universal levies, Bessent’s appointment signals a potential shift in US economic policy. His approach aims to address income inequality while maintaining economic growth. However, markets have reacted cautiously, reflecting uncertainty about how his policies will play out in the long term.

Market movements: Mixed reactions across assets

Financial markets have been sending mixed signals amid the ongoing turbulence. The MSCI US index fell by 1.5 per cent, with tech stocks leading the decline at -5.5 per cent. On the other hand, the Financials sector managed to gain 0.9 per cent, offering a rare bright spot. Treasury yields also dropped, with the 10-year yield falling to 4.53 per cent and the two year yield to 4.20 per cent.

Commodities showed varied performance. Gold remained steady above US$2,700 per ounce despite a slight decline, while Brent crude oil fell by 1.8 per cent, nearing US$75 per barrel. The oil market’s movement reflects expectations that OPEC+ will stick to its current supply plan. Meanwhile, the US Dollar Index stabilised, consolidating its recent losses and signalling a period of relative calm after recent volatility.

Crypto developments: A boost for US innovation

The cryptocurrency sector received a significant boost with Eric Trump’s announcement of tax exemptions for US-based crypto projects. This policy is designed to encourage innovation within the United States and position the country as a global leader in blockchain and digital assets. By exempting domestic projects from capital gains tax while imposing a 30 per cent tax on foreign-based projects, the administration aims to attract talent and investment to the US.

The announcement specifically mentioned well-known projects like XRP (Ripple Labs) and HBAR (Hedera Hashgraph Network), signalling strong government support for established players in the crypto space. This move could pave the way for increased investment and innovation, further solidifying the US’s position as a hub for blockchain technology.

Also Read: Breaking barriers: How crypto is disrupting education funding

Bitcoin and crypto market decline: DeepSeek’s ripple effect

DeepSeek’s rise hasn’t just disrupted the tech sector—it’s also sent shockwaves through the cryptocurrency market. Bitcoin, which had been trading above US$100,000, fell below this key level on Monday. The decline was part of a broader market sell-off triggered by concerns over DeepSeek’s impact on global investment trends.

The rapid ascent of DeepSeek has raised questions about the future of AI and its intersection with other industries, including blockchain. As investors reassess their portfolios in light of these developments, the crypto market is likely to remain volatile. However, the long-term potential of blockchain technology remains strong, especially with recent US policy changes creating a more supportive environment for growth.

Conclusion

The global financial landscape is undergoing a period of rapid transformation, driven by technological breakthroughs, policy changes, and shifting market dynamics. DeepSeek’s emergence as a disruptive force in the AI space has highlighted the need for investors to adapt to a rapidly evolving environment. At the same time, US policy changes, including tariffs and crypto tax exemptions, reflect a strategic focus on fostering domestic growth and innovation.

While the short-term outlook is uncertain, these developments underscore the importance of staying informed and flexible. By diversifying investments and keeping an eye on emerging trends, investors can navigate the challenges and opportunities of this transformative era. The rise of DeepSeek and the evolving crypto landscape are reminders that innovation often comes with disruption—but also with immense potential.

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