Amid market sell-off triggered by DeepSeek AI, bitcoin resilience shows potential as portfolio diversifier, says analyst
2025-01-28
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Monday’s market sell-off, triggered by DeepSeek’s new AI model, highlighted the contrasting reactions of bitcoin and major equities to the volatility. While traditional risk assets like large-cap tech stocks suffered significant declines, bitcoin showed a more resilient recovery. Analysts suggest that this dynamic offers valuable insights into bitcoin’s growing potential as a portfolio diversifier.
"The DeepSeek induced selloff certainly tested the correlation that bitcoin has tended to exhibit versus large cap tech stocks and broader risk assets," cryptocurrency derivatives trader Gordon Grant told The Block. "The strength of bitcoin's bounce back and narrative shift along side it can start to create a salubrious differentiation that bitcoin differs materially from, and may actually have very little in common with, the blanket bets on an AI powered future."
This week’s market volatility has raised questions about whether bitcoin’s long-standing correlation with the Nasdaq could be weakening.
"This week could test whether bitcoin’s correlation with equities weakens, particularly as a favorable regulatory environment offers potential support," QCP Capital analysts said.
Bitwise European Head of Research Europe André Dragosch pointed out that bitcoin’s price stabilized late on Monday, while Nasdaq futures continued to decline throughout U.S. afternoon trading hours.
"This implies that bitcoin had limited downside and there was some decoupling evident already," Dragosch told The Block.
The Bitwise analyst noted that bitcoin’s downside risks appear limited, which could increase the likelihood of a decoupling if U.S. equities continue to slide. Dragosch echoed industry sentiments that bitcoin’s dips appear sharper and are being bought up more swiftly.
"People often stress over correlations when the market takes a hit, and cryptoassets follow suit," said Dragosch. "However, history shows that for bitcoin, a short-term dip often leads to a long-term surge."
Bitcoin's ability to recover quickly from dips is drawing attention
In the past 24 hours, the price of the digital asset dropped from $105,000 to $99,000—a 5% decline—before rebounding to over $102,000, reflecting a 3% recovery, according to The Block's Price Page. By contrast, Nvidia saw a sharp 17% drop on Monday, with its stock only slightly recovering by 0.13% in pre-market trading. Ahead of the opening bell, Dow Jones futures dropped 0.2%, while Nasdaq 100 futures and S&P 500 futures ticked up only slightly.
Grant added that the derivatives market also saw a quick reduction in implied volatility following the initial panic, signaling that investors could digest the market movement and refocus on key technical levels.
"Bitcoin’s quickly re-established prices at the top end of the range that’s prevailed since late November," he said.
As bitcoin’s market capitalization grows, it is gaining traction with a broader audience, Grant said. This trend is reflected in the increased trading volumes of spot exchange-traded funds (ETFs) that track bitcoin’s price. While this shift strengthens the case for bitcoin as a portfolio diversifier, Grant warned of potential challenges.
"As bitcoin becomes more integrated into diversified portfolios, it may also face the 'common ownership problem,' where panicked selling can affect all assets simultaneously," he said.
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