Important points:
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The correlation between Bitcoin and Nvidia has risen to 0.75, the highest in over a year.
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Analysts fear that this correlation could cause the price of BTC to fall by up to 80%.
Bitcoin (BTC) and Nvidia stock (NVDA) are currently trending more in sync than at any point in the past year. As a result, some market participants are concerned that a crash similar to the dot-com bubble of the late 1990s is looming.
Risky AI-to-AI trading poses risk of crypto crash
As of Friday, BTC’s 52-week correlation with the world’s top chipmaker had risen to 0.75. This happened in the same week that both Nvidia and Bitcoin’s valuations reached new record levels.
Nvidia stock has risen 43.6% since the beginning of the year, topping $195.30 on Thursday, while Bitcoin has risen 35.25% to above $126,270 on Monday.
This lockstep rise suggests that traders may be treating Bitcoin as a high-beta technology asset. But some analysts are drawing comparisons to the dot-com mania of the late 1990s, and the similarities are also fueling fears of an AI bubble.
Market commentator The Great Martis said the rise in AI and cryptocurrencies could represent a “double bubble.”
The surge in AI-related deals highlights the enthusiasm. This week, OpenAI agreed to spend tens of billions of dollars over several years on AMD chips, making OpenAI one of its largest shareholders.
This move creates an investment loop among a select group of AI companies. For example, OpenAI signed a $300 billion deal with Oracle.
The same Oracle is Nvidia’s strategic computing partner, and by the way, Nvidia plans to invest $100 billion in OpenAI.
Both Nvidia and OpenAI have also invested heavily in another cloud company, CoreWeave. Nvidia acquired services worth $6.3 billion, while OpenAI pledged up to $22.4 billion.
In other words, all these AI giants are funding each other, and they’re all circulating in the same small circle. With AMD joining the mix, analysts are calling this self-reinforcing investment loop a “major red flag.”
Parallels to the dot-com bubble can be drawn when Cisco financed equipment purchases and effectively stimulated demand for its network infrastructure, driving up valuations until the bubble burst.
“People tend to forget that the dot-com bubble caused an 80% collapse in the Nasdaq,” Great Martis said, adding:
“Today, a multi-trillion dollar crypto sector exists that resembles a similar irrational exuberance and Ponzi scheme.”
“AI, Cryptography, Quantum, Nuclear” Bubble Warning
Trader and educator Adam Koo warns that Bitcoin could be the biggest loser when the current AI and crypto boom comes to an end.
Related: Cryptocurrency treasury firms pose risks similar to the dot-com bust of the 2000s
Koo recalls that during the 2000-2002 crash, Warren Buffett’s Berkshire Hathaway avoided the tech sector completely and made an 80% profit by holding profitable companies such as Coca-Cola, American Express and Moody’s.
“Money has dried up from technology and flowed into all areas other than technology,” Koo added.
“When the AI/crypto/quantum/nuclear bubble bursts, stocks of overvalued and unprofitable companies in these areas will fall by 50% to 80%.”
Buffett doesn’t own NVIDIA or AMD stock, and he doesn’t own “rat poison squared” BTC. Instead, he has amassed a record $350 billion in cash, reflecting Berkshire’s cautious stance before the tech bubble burst in 2000.
“When the AI/crypto/quantum/nuclear bubbles eventually burst, overvalued and unprofitable stocks in these sectors will fall by 50% to 80%,” Koo warned.
This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making decisions.