Chips Down: Kimi K3 Spooks Semis and Crypto Can't Catch a Bid 🥶

A selloff in Asian semiconductor equities spilled into digital assets on Friday, dragging bitcoin below $63,000 and pushing ether down roughly twice as hard as the flagship cryptocurrency. Ether dropped 4% to $1,850, while hyperliquid's HYPE slid 10% on the day and 12% on the week to $60 — its steepest stretch since June. Bitcoin (BTC) fell about 2% to around $63,400, down 1% on the week after failing twice at $65,000. Solana (SOL) eased 2% to $75, XRP lost 2% to $1.09, BNB fell 2% to $571, TRON slipped to 32 cents and dogecoin dropped 2%. Total crypto market capitalization shed 1.86% to $2.16 trillion, with bitcoin recovering from a dip below $63,000 to trade at $63,956.15, down 1.2% since midnight UTC.

The selling started in chips. Japan's Nikkei 225 slumped 5% — its worst session since March — while MSCI's Asia Pacific equities gauge dropped 3%, heading for its lowest close in two months. Taiwan Semiconductor was on track for its biggest one-day decline since April 2025, Japan's Kioxia sank as much as 16%, and Taiwan's benchmark fell more than 6%. The trigger was the overnight launch of Moonshot AI's Kimi K3, a large Chinese open-source language model. On the Artificial Analysis Intelligence Index, K3 scored 57, ranking above Claude Opus 4.8 and GPT-5.5 and roughly on par with Claude Fable 5 and OpenAI's GPT-5.6 Sol, with full weights scheduled to drop July 27 under a Modified MIT license. The VanEck Semiconductor ETF (SMH) fell below its EMA support band for the first time since April, extending a rout that has left it more than 20% below its late-June record high, while Nasdaq 100 futures dropped 1.91% and S&P 500 futures slipped 0.96%.

Wall Street framed the release as confirmation of a trend rather than a shock. "K3 has received positive feedback globally, signaling an all-round catch-up of Chinese LLMs with U.S. leaders in model size, performance, and pricing," Morgan Stanley analyst Gary Yu wrote, while Bernstein's Robin Zhu called the debut "confirmatory" of views that "AI [state of the art] continues to evolve rapidly" and that "China AI can continue to keep pace with global [state of the art], and take some share over time." The release drew comparisons to DeepSeek's R1 launch in January 2025, the day Nvidia shed roughly $590 billion in market cap. "The market is ending the week with two bruises: AI fatigue and Hormuz heat," said Patrick Munnelly at Tickmill Group. "The semiconductor selloff has gone from profit-taking to position-clearing, dragging Asia toward its worst levels in months." Moonshot, backed by Alibaba's $1 billion 2024 investment at a $2.5 billion valuation, is now valued at roughly $31.5 billion, and Cursor's Composer 2 was previously found to be running on Kimi K2.5 without disclosure.

Crypto-specific flows offered little counterweight. U.S. spot ether ETFs took in nearly $97 million over the first three days of the week — more than across all of last week — with BlackRock's funds accounting for almost all of it. Wintermute's OTC desk described the week as "consolidation under resistance rather than continuation," noting in an email that spot volumes fell rather than rose into the highs. The long-short ratio in crypto futures, measured by taker buy-sell volume, slipped to 0.94, the lowest since June 2, indicating that bears remain in control of derivatives positioning. Glassnode's onchain metrics have yet to confirm a reversal, and the Fear and Greed Index sat at 25, deep in extreme fear territory.

A separate set of pressures compounded the move. Escalating Middle East tensions lifted the Dollar Index (DXY) to 100.75, sent oil prices higher and pushed gold up 0.61% back above $4,000. The average relative strength index (RSI) across crypto pairs dipped to 42.23, approaching the oversold conditions that triggered July's relief bounce. South Korea's Kospi was closed for Constitution Day, a week after it jumped 8% on SK Hynix's $26.5 billion American depositary share offering. Privacy coins bucked the trend, with ZEC and DASH both advancing, while AI-linked tokens FET and TAO rose despite the sector struggling to sustain momentum since mid-June.