AI Agent Tokens Rebound as DeepSeek Faces Major Setbacks

AI agent tokens are experiencing a resurgence after suffering a $5 billion loss this week due to DeepSeek’s sudden popularity. 

Several challenges for DeepSeek emerged today, shifting market sentiment and fueling gains in AI-related tokens.

DeepSeek Faces Mounting Pressure

On Wednesday, Alibaba unveiled Qwen 2.5, an AI model it claims outperforms DeepSeek-V3. This announcement shook investor confidence in DeepSeek’s sustainability in the AI sector.

Additionally, OpenAI accused DeepSeek of using “distillation” techniques to train its AI models on OpenAI’s outputs. This is a potential breach of OpenAI’s terms of service. 

“Deepseek’s r1 is an impressive model, particularly around what they’re able to deliver for the price. We will obviously deliver much better models, and also, it’s legit invigorating to have a new competitor! We will pull up some releases,” Sam Altman, OpenAI CEO, wrote on X (formerly Twitter). 

The technique allows smaller models to replicate the performance of larger ones at a fraction of the cost. More importantly, it raises ethical and legal concerns within the AI research community.

Further complicating DeepSeek’s troubles, Italy’s data protection authority initiated an investigation into its use of personal data. 

As a result, DeepSeek’s app has been blocked from Apple and Google stores in Italy. 

“DeepSeek is not that special, the only thing that makes it better is that you can use it for free. China knew that USA won’t compete with free and cheaper products. USA, instead of competing, they want to ban the app in USA. The only solution for USA is banning the competition,” Mo Magoda wrote on X (formerly Twitter). 

AI Agent Coins See Market Rebound

Following these developments, AI Agent coins, which had faced heavy losses earlier this week, began to recover. 

Virtuals Protocol surged over 8%, while AIXBT and Ai16z both gained over 10% as investors redirected their focus toward decentralized AI projects.

The market correction comes after DeepSeek’s initial rise had diverted attention from AI-focused cryptocurrencies, leading to a sharp decline in their valuations. 

At the beginning of this week, DeepSeek unveiled its AI assistant, which rivals existing models but operates at a fraction of the cost. 

This innovation led to a substantial selloff in US technology stocks, with companies like Nvidia losing $589 billion from its market capitalization. Consequently, the stock price of crypto mining companies and AI-based cryptocurrencies dropped sharply. 

However, as the hype cools down, the market is starting to see the potential downsides of this new AI model. 

Also, several fake DeepSeek meme coins have surfaced on decentralized exchanges. Although DeepSeek has clarified it doesn’t associate with any cryptocurrency, scammers are still exploiting the hype.