In a surprising turn of events, U.S. officials have reversed their stance on China’s DeepSeek AI, classifying it as a potential case of intellectual property theft just a day after President Donald Trump praised it as a positive development. White House artificial intelligence and crypto czar David Sacks has now claimed that there is substantial evidence that DeepSeek “distilled” knowledge from OpenAI’s models, likening the process to intellectual property theft.
The controversy surrounding DeepSeek escalated after its R1 model was launched, triggering a massive sell-off in tech stocks and wiping over $1 trillion from the Nasdaq Composite Index. Companies like NVIDIA, Alphabet, and Microsoft suffered major losses as a result of DeepSeek’s rapid ascent in the market.
Sacks, speaking to Fox News, suggested that DeepSeek used responses from OpenAI’s models to train its own, a practice that goes against OpenAI’s terms of service. OpenAI has also raised concerns over DeepSeek’s methods, citing signs of distillation in R1’s development. While distillation is a common technique in AI development, OpenAI explicitly prohibits using its outputs to train competing models.
The rise of DeepSeek has been nothing short of explosive, quickly outpacing major U.S. competitors like OpenAI’s ChatGPT and Google’s Gemini. Despite the controversy, DeepSeek’s ability to deliver strong results on a budget has been acknowledged by industry experts, including OpenAI CEO Sam Altman.
The market reaction to the DeepSeek controversy was not limited to tech stocks, as fear rippled through the crypto sector, causing AI-focused cryptocurrencies to plummet. Bitcoin briefly dipped below $100,000, and total liquidations soared by more than 850% on Jan. 27, wiping out nearly $1 billion in leveraged positions.
While the DeepSeek fallout has caused volatility in the market, some crypto industry proponents believe that its success could be bullish for AI projects, potentially lowering the costs of running AI-powered blockchain applications. The ongoing controversy surrounding DeepSeek highlights the complex relationship between technological innovation, intellectual property, and market dynamics in the digital age.