The soaring correlation between Bitcoin and Nvidia (NVDA) is raising concerns about a potential market bubble, drawing parallels to the dot-com era and sparking warnings of a possible 80% crash. The 52-week correlation between Bitcoin and Nvidia has reached 0.75, its highest point in a year, as both assets have achieved record valuations.
Nvidia's stock has surged by 43.6% year-to-date, reaching $195.30, while Bitcoin has risen by 35.25% to over $126,270. This synchronized rally suggests that traders may be viewing Bitcoin as a high-beta tech asset, intensifying fears of an AI bubble. Market commentator The Great Martis has even described the AI-crypto rally as a potential "double bubble".
Adding to the unease is a complex web of investments among key AI players like Nvidia, OpenAI, and AMD, which some analysts are calling a "massive red flag". OpenAI has committed to spending tens of billions on AMD chips over several years, making AMD one of its largest shareholders. Nvidia plans to invest $100 billion in OpenAI, while both Nvidia and OpenAI are investing heavily in CoreWeave. Nvidia is purchasing $6.3 billion worth of services and OpenAI committing up to $22.4 billion in CoreWeave. This self-reinforcing investment loop is drawing comparisons to the dot-com bubble when companies like Cisco fueled demand for their own products, inflating valuations until the bubble burst.
Adding to the chorus of concern, trader and educator Adam Khoo suggests that the current AI and crypto boom could lead to significant losses for Bitcoin when it ends. He pointed to Warren Buffett's Berkshire Hathaway gaining 80% during the 2000-2002 crash by avoiding the tech sector and investing in profitable companies. Khoo warns that overvalued and unprofitable stocks in the AI, crypto, quantum, and nuclear sectors could plummet by 50% to 80% when the bubble bursts.
While proponents of both Bitcoin and AI technology maintain long-term bullish outlooks, the rising correlation and intricate investment loops have injected a dose of caution into the market. Some analysts are advising investors to carefully assess their risk exposure and consider the potential for a significant correction. As the AI and crypto landscapes continue to evolve, monitoring the correlation between Bitcoin and Nvidia, as well as the financial dealings of major AI players, will be crucial in gauging the sustainability of the current market surge.
