Key takeaways:
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Bitcoin’s correlation with Nvidia has surged to 0.75, its highest in a year.
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Analysts fear such a correlation may result in BTC price dropping by up to 80%.
Bitcoin (BTC) and Nvidia stock (NVDA) are now moving more in sync than at any point in the past year. That has some market watchers worried about a looming crash similar to the dot-com bubble era in the late 1990s.
Risky AI-on-AI deals pose crypto crash risks
BTC’s 52-week correlation with the world’s top chipmaker has climbed to 0.75 as of Friday. It comes in the same week in which both Nvidia and Bitcoin valuations have hit new record levels.
Nvidia’s share price has soared 43.6% year-to-date, topping $195.30 on Thursday, while Bitcoin gained 35.25% to over $126,270 on Monday.
The lockstep rally suggests traders may be treating Bitcoin as a high-beta tech asset. Yet, the parallels are also fueling fears of an AI bubble, with some analysts drawing comparisons to the late-1990s dot-com mania.
Market commentator The Great Martis said that the AI-crypto rally may represent a “double bubble.”
The surge in AI-linked deals underscores the frenzy. This week, OpenAI agreed to spend tens of billions on AMD chips over several years, with AMD set to make OpenAI one of its biggest shareholders.
The move is creating an investment loop among a select group of AI companies. For instance, OpenAI has signed a $300 billion deal with Oracle.
The same Oracle is serving as a strategic computer partner to Nvidia, which, by the way, plans to invest $100 billion in OpenAI.
Both Nvidia and OpenAI are also investing heavily in another cloud company, CoreWeave. Nvidia has bought $6.3 billion worth of its services, while OpenAI has promised up to $22.4 billion.
In short, these AI giants are all funding each other, keeping the money spinning inside the same small circle. As AMD joins it, analysts are calling this self-reinforcing investment loop a “massive red flag.”
Parallels can be drawn to the dot-com bubble when Cisco funded gear purchases, effectively fueling demand for its own networking infrastructure, and inflating valuations until the bubble burst.
“People often forget that the Dotcom bubble caused an 80% Nasdaq crash,” The Great Martis said, adding:
“Today, similar irrational exuberance and a trillion-dollar crypto sector resembling a Ponzi scheme exist.”
“AI, crypto, quantum, nuclear” bubble warning
Trader and educator Adam Khoo warns that the current AI and crypto boom may turn Bitcoin into one of the biggest losers when it ends.
Related: Crypto treasury companies pose a similar risk to the 2000s dotcom bust
Khoo recalls that during the 2000–2002 crash, Warren Buffett’s Berkshire Hathaway gained 80% by avoiding the tech sector entirely and holding profitable companies such as Coca-Cola, American Express, and Moody’s.
“Money ran out of tech and flowed into all the non-tech,” Khoo says, adding
“When the AI/Crypto/Quantum/Nuclear bubble bursts, the overvalued and unprofitable names in these sectors will drop 50% to 80%.”
Buffett neither holds Nvidia nor AMD shares, and not “rat poison squared” BTC. He is instead sitting on a record $350 billion cash pile, echoing Berkshire’s cautious stance ahead of the tech bubble burst in 2000.
“When the AI/Crypto/Quantum/Nuclear Bubble bursts eventually, the overvalued and unprofitable stocks in these sectors will drop 50% to 80%,” warned Khoo.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
