Key Insights

• Bitcoin’s correlation with Nvidia has climbed to 0.75, its highest in a year.
• Analysts warn this correlation could lead to a potential 80% drop in BTC prices.

Bitcoin (BTC) and Nvidia’s shares (NVDA) have become closely aligned, causing concern among strategic market observers about a possible crash similar to the dot-com bubble of the late 1990s.

Risks Associated with AI Investments

Bitcoin’s correlation to Nvidia hit a peak of 0.75 last Friday, concurrent with record highs for both assets. Nvidia shares rose 43.6% in 2023, while Bitcoin’s value surged by 35.25%.

BTC/USD weekly price chart. Source: TradingView
The synchrony in their price movements suggests traders increasingly view Bitcoin as a high-risk tech asset. This trend mirrors apprehensions surrounding an AI bubble reminiscent of the 1990s.
Market commentator The Great Martis indicated that the current situation could exemplify a “double bubble.”
The wave of AI-related investments highlights this frenzy. Recently, OpenAI committed tens of billions to AMD chips, making OpenAI a major AMD stakeholder. They also signed a $300 billion deal with Oracle for computing support.
This investment dance among major AI firms raises concerns, as both Nvidia and OpenAI have significant stakes in various cloud service providers, creating a mutually reinforcing financial cycle. Analysts have cautioned that this could serve as a troubling indicator.
As history suggests with the dot-com bubble, Cisco’s self-funding of its networking needs led to unsustainable valuations which eventually crashed.
“People often forget the Dot-com bubble led to an 80% decline in the Nasdaq,” said The Great Martis, adding:

“Today, we see irrational investment enthusiasm amid a trillion-dollar crypto market mimicking a Ponzi scheme.”

Warnings for Future Investment

Trader Adam Khoo forewarns that once the AI and crypto boom fails, Bitcoin may face massive devaluation.
In the early 2000s, Warren Buffett’s Berkshire Hathaway saw significant gains by avoiding tech stocks and investing in stable companies. Khoo advocates for a similar strategy today, suggesting that when the impending bubble bursts, we could see drops ranging from 50% to 80% for overvalued tech companies.
Buffett, now holding a considerable cash reserve, has remained cautious and has avoided shares in Nvidia, AMD, and Bitcoin, sticking instead to proven investments.