Key takeaways:
The correlation between Bitcoin and Nvidia has risen to 0.75, the highest it has been in a year.
Analysts worry that this correlation could lead to an 80% drop in BTC prices.
Bitcoin (BTC) and Nvidia stock (NVDA) are now more aligned than ever over the past year. This raises concerns among market observers about a potential crash reminiscent of the late 1990s dot-com bubble.
Risky AI-on-AI deals threaten crypto stability
As of Friday, BTC’s correlation with the leading chip manufacturer has increased to 0.75, coinciding with record highs for both Nvidia and Bitcoin valuations.
Nvidia’s share price has increased by 43.6% year-to-date, exceeding $195.30 on Thursday, while Bitcoin has climbed 35.25% to over $126,270 on Monday.
This synchronized surge suggests that traders may perceive Bitcoin as a high-beta tech asset. However, the similarities are also igniting concerns about an AI bubble, drawing parallels to the dot-com frenzy of the late 1990s.
Market commentator The Great Martis remarked that the AI-crypto surge might signify a “double bubble.”
The rise in AI-related transactions highlights the excitement. This week, OpenAI announced a deal to invest tens of billions in AMD chips over several years, positioning AMD as one of OpenAI’s largest shareholders.
This creates a cycle of investment among select AI firms. For instance, OpenAI has finalized a $300 billion agreement with Oracle.
Oracle is also a strategic computing partner for Nvidia, which intends to invest $100 billion in OpenAI.
Nvidia and OpenAI are simultaneously making substantial investments in another cloud firm, CoreWeave. Nvidia has purchased $6.3 billion worth of services from CoreWeave, while OpenAI has pledged up to $22.4 billion.
In essence, these AI leaders are inter-funding each other, keeping the financial flow within a small network. As AMD joins the mix, analysts are flagging this self-perpetuating investment cycle as a “massive red flag.”
Parallels to the dot-com bubble can be made when Cisco financed equipment purchases, effectively sparking demand for its networking solutions and inflating valuations until the crash occurred.
“Many forget that the Dotcom bubble caused a Nasdaq crash of 80%,” said The Great Martis, noting:
“Today, there is similar irrational exuberance, with a trillion-dollar crypto market resembling a Ponzi scheme.”
“AI, crypto, quantum, nuclear” bubble alert
Trader and educator Adam Khoo cautions that the current boom in AI and crypto could turn Bitcoin into one of the biggest casualties once it collapses.
Related: Crypto treasury firms present a risk akin to the early 2000s dot-com crash
Khoo reflects on the 2000–2002 downturn when Warren Buffett’s Berkshire Hathaway gained 80% by steering clear of the tech sector and focusing on profitable companies like Coca-Cola and American Express.
“Funds flowed out of tech and into non-tech sectors,” Khoo states, adding:
“When the AI/Crypto/Quantum/Nuclear bubble bursts, the overvalued and non-profitable entities in these sectors could plummet 50% to 80%.”
Buffett does not own shares in Nvidia or AMD, nor does he hold “rat poison squared” BTC. He currently has a record cash reserve of $350 billion, reflecting Berkshire’s cautious approach before the tech bubble burst in 2000.
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.
