Essential Insights:
The correlation between Bitcoin and Nvidia has risen to 0.75, the highest level in a year.
Analysts warn that this correlation could lead to a potential BTC price drop of up to 80%.
Bitcoin (BTC) and Nvidia stock (NVDA) are now more closely aligned than ever over the past year, causing concern among market analysts about a potential crash akin to the late 1990s dot-com bubble.
Risky AI Partnerships May Threaten Crypto Stability
As of Friday, BTC’s 52-week correlation with the leading semiconductor manufacturer has increased to 0.75, coinciding with a week where both Nvidia and Bitcoin reached record valuations.
Nvidia’s share price has climbed 43.6% year-to-date, surpassing $195.30 on Thursday, while Bitcoin rose 35.25% to exceed $126,270 on Monday.
This synchronized rise suggests traders view Bitcoin as a high-beta tech asset, but it also raises alarms about a potential AI bubble, with some analysts making comparisons to the dot-com euphoria of the 1990s.
Market observer The Great Martis remarked that the current AI-crypto surge may signal a “double bubble.”
The influx of AI-driven deals highlights this frenzy. Recently, OpenAI committed to investing tens of billions in AMD chips over several years, positioning AMD as a major stakeholder in OpenAI.
This strategy is creating an investment cycle among select AI firms. For instance, OpenAI has finalized a $300 billion agreement with Oracle.
Oracle is also acting as a strategic partner to Nvidia, which plans to invest $100 billion in OpenAI.
In addition, both Nvidia and OpenAI are heavily investing in another cloud entity, CoreWeave. Nvidia has committed $6.3 billion for its services, while OpenAI has pledged as much as $22.4 billion.
Essentially, these AI behemoths are funding one another, perpetuating a self-reinforcing financial loop. As AMD enters this circle, analysts are labeling this growing investment cycle a “significant warning.”
Similar patterns can be observed from the dot-com era when Cisco funded equipment acquisitions, effectively driving demand for its own networking products and artificially inflating market valuations until the bubble burst.
“It’s often overlooked that the Dotcom bubble led to an 80% crash in the Nasdaq,” The Great Martis noted, adding:
“Today, we see comparable irrational exuberance and a trillion-dollar crypto market that resembles a Ponzi scheme.”
Warnings of an “AI, crypto, quantum, nuclear” Bubble
Trader and educator Adam Khoo alerts that the current AI and crypto boom could position Bitcoin as one of the major casualties when the bubble bursts.
Related: Crypto treasury firms may pose risks similar to the dot-com bust of the 2000s
Khoo recalls that during the market crash from 2000 to 2002, Warren Buffett’s Berkshire Hathaway grew by 80% by steering clear of tech stocks and investing in stable companies like Coca-Cola, American Express, and Moody’s.
“Capital shifted away from technology and into non-tech sectors,” Khoo observed, stating:
“When the AI/Crypto/Quantum/Nuclear bubble pops, the overpriced and unprofitable sectors will plummet by 50% to 80%.”
Buffett currently does not hold shares in Nvidia or AMD, nor does he invest in BTC, often described as “rat poison squared.” Instead, he maintains a record $350 billion in cash, echoing Berkshire’s cautious posture leading up to the tech market collapse in 2000.
This article does not provide investment advice or recommendations. All investments and trading involve risks, and readers should conduct their own research before making any decisions.
