Bitcoin Drops As Investors Wonder If AI Bubble Popped

Main takeaways:

• Volatility and uncertainty in the big tech industry, coupled with concerns about Federal Reserve policy, have put pressure on risk assets, pushing Bitcoin’s correlation with the Nasdaq to its highest level in months.

• Cryptocurrency traders expect liquidity to improve in the future as US fiscal pressures increase and Trump pushes a stimulus agenda focused on tariffs.

The tech-heavy Nasdaq saw a 4% drop intraday Thursday despite strong earnings and forecasts from chipmaker Nvidia. Investors have expressed concerns about rising spending in the AI ​​sector, and Bitcoin (BTC) followed suit, falling below $86,000 for the first time since April.

Despite investors’ concerns about excessive market valuations, billionaire investor Ray Dalio said there is no clear reason for an imminent market collapse. “The picture is very clear that we are in bubble territory,” Dalio told CNBC, recommending investors diversify into scarce assets such as gold.

Dalio added that his biggest fear is increasing wealth taxes rather than tightening monetary policy. However, contrary to Ray Dalio’s view, market sentiment turned after the US reported a stronger-than-expected jobs report for September, leading traders to doubt that the US Federal Reserve will further ease its monetary policy.

Nonfarm payrolls rose by 119,000 in September, reversing the previous month’s decline. Most FOMC participants male “Further interest rate cuts could increase the risk of rising inflation worsening,” according to minutes from the October meeting released on Wednesday. On Thursday, traders discounted the odds of two interest rate cuts by January 2026, reflecting renewed caution among equity and bitcoin investors.

Based on implicit pricing in government bond markets, investors now assign a 20% chance that the FOMC will set interest rates at 3.50% on January 28, down from 55% one month earlier. While FOMC minutes show that many Fed policymakers do not favor an immediate rate cut, they offer little insight into how close a split decision might be in October.

AI build costs overshadow strong earnings and Walmart’s surprises

Even with strong corporate earnings, including a positive surprise from Walmart, traders fear the economy will weaken as artificial intelligence developers, such as OpenAI, continue to spend heavily. Jill Loria, Head of Technology Research at DA Davidson, He said CNBC reported that “the concern is that companies are raising too much debt to build data centers.”

Data centers are “inherently speculative investments that could face a reckoning two or three years from now,” Loria said, adding that Nvidia’s profits are not “a reliable measure of whether the economics of AI are truly maturing.” The Nasdaq technology index has fallen 7.8% since its all-time high on October 29, erasing the gains it made in the previous 10 weeks. Investors responded by retreating from risk markets.

Related to: Bitcoin Price Drop to $86K Brings BTC Closer to “Maximum Pain” Zone but Great “Discount” Zone

Amid heightened uncertainty, Bitcoin’s price action continues to reflect trends in the technology sector. The correlation between the two asset classes rose to a six-month high of 80%, suggesting that investors are paying less attention to Bitcoin’s strengths in decentralization and predictable monetary policy.

Bitcoin traders are not necessarily bearish below $90,000 and will likely wait for clearer entry points as broader macro conditions remain unstable. If Dalio is right, panicked sellers may end up regretting their exit, with liquidity conditions likely to improve while the US fiscal debt problem remains, and US President Donald Trump presents his “tariff dividend” proposal aimed at stimulating the economy.

This article is for general information purposes and is not intended and should not be taken as legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.