Bitcoin's Rollercoaster: Weeping from DeepSeek Shock, Smiling at US Rate Freeze

Faster Recovery than US Stock Market

Up to $130,000 Expected Within Two Months

Strategic Asset Hoarding Signs in US States

Bitcoin, which plummeted during the Lunar New Year holiday (January 25-30) due to the shockwave from Chinese AI startup DeepSeek, has recovered to the $100,000 mark. This comes as the US Federal Reserve (Fed) decided to hold interest rates steady, accompanied by dovish remarks from Fed Chair Jerome Powell. There are warnings to be cautious about Bitcoin's price volatility in the near term.

◇Bitcoin on a Rollercoaster

According to domestic cryptocurrency exchange Upbit on the 4th, Bitcoin, which was trading at around 157 million won, briefly dropped to 151 million won on the 27th of last month. In overseas markets, it traded down 7% at $97,000, breaking the $100,000 level.

Bitcoin's sharp decline was attributed to concerns that the latest AI model from DeepSeek, known for its affordability and high performance, had led to an overvaluation of US tech companies' stocks. Bitcoin is classified as a representative risk asset alongside US big tech stocks. Typically, when US tech stocks fall, Bitcoin prices also tend to weaken.

However, Bitcoin showed a faster recovery than the US stock market. It hit a low of $97,000 and rose more than $5,000 in less than a day, recovering to $100,000. This contrasts with the S&P 500 and Nasdaq 100, which fell by 1.5% and 3%, respectively. Andre Dragos, head of European research at asset management firm Bitwise, commented on X (formerly Twitter), "Bitcoin's stability while Nasdaq continues to decline is a bullish signal."

The results of the Fed's Federal Open Market Committee (FOMC) meeting on the 29th of last month (local time) did not significantly impact Bitcoin's price. The Fed held the interest rate steady at 4.5% (upper bound) after three consecutive cuts in September, November, and December last year. The market interpreted the Fed's decision to hold rates as a resolution of short-term uncertainty. Jeffrey Kendrick, head of virtual asset research at Standard Chartered (SC), stated, "The Fed's decision to hold rates has resolved short-term uncertainty, and the market has entered a stabilization phase," predicting that "with institutional funds accelerating and market sentiment shifting towards risk appetite, Bitcoin could rise to as much as $130,000 within two months."

◇US, Considering as a Strategic Asset?

With Donald Trump taking office, there is a growing movement in the US to hoard Bitcoin as a strategic asset on a state-by-state basis. In 15 major US states, including Montana, Texas, Utah, and Arizona, bills are being proposed or reviewed to prepare reserves of Bitcoin and virtual assets. According to cryptocurrency specialist media CoinGape, lawmakers in Montana have proposed a bill to invest up to $50 million in Bitcoin and virtual assets. Utah and Arizona have already passed related bills, approving the holding of Bitcoin at the state level.

Recently, Ales Michl, governor of the Czech National Bank, mentioned in an interview with the Financial Times (FT) that they are considering Bitcoin as a means of diversifying central bank reserves and could incorporate up to 5% of reserves. In contrast, Christine Lagarde, president of the European Central Bank (ECB), stated after a conversation with Governor Michl, "I am confident that Bitcoin will not be introduced into the reserves of any central bank participating in the ECB's general council."

◇Diverging Views

Even among US asset management firms, views on Bitcoin are divided. Larry Fink, CEO of BlackRock, attended the World Economic Forum (WEF) in Davos on the 22nd (local time) as a panelist and argued that "if many asset managers and sovereign wealth funds allocate about 2-5% of their portfolios to Bitcoin, the price of Bitcoin could rise to as much as $700,000 (approximately 1 billion won)."

He stated, "Governments around the world are concerned about currency devaluation due to inflation or economic and political instability," and suggested that "as a hedge against this, they may buy and hold Bitcoin as an international transaction medium to overcome the crisis." He added, "I firmly believe that Bitcoin can be used as an actual transaction medium and can function as a hedge against securities stocks." He continued, "Many sovereign wealth funds are discussing whether to increase their investment ratio in Bitcoin to 2% or up to 5%."

Elliott Management, the largest activist hedge fund in the US, warned that the Trump administration's virtual asset policy is inflating a 'bubble.' According to the FT, Elliott recently sent a letter to investors, pointing out that a speculative frenzy is sweeping across the financial markets, with the epicenter being the virtual asset market. Elliott stated, "We have never seen financial markets move in this way," and "investors are behaving like the general public betting on sports." They warned that "although virtual asset prices have soared, these assets have no substance," and "a collapse is inevitable, and if prices plummet, it could cause massive chaos."

Elliott added, "The US dollar enjoys tremendous advantages as the world's reserve currency," and questioned, "Why is the US government encouraging the adoption of alternative currencies at a time when other countries are trying to reduce their reliance on the dollar?" They concluded, "Supporting a weaker dollar is very dangerous."

Reporter Joe Mihyeon mwise@hankyung.com