Bitcoin's Correlation to Nvidia Strongest in Over a Year

🌈 Abstract

The article discusses the rising correlation between Bitcoin (BTC) and Nvidia (NVDA) shares, as well as concerns about an AI bubble that could burst.

🙋 Q&A

[01] Bitcoin and Nvidia Correlation

1. What is the current correlation between Bitcoin and Nvidia?

• The 90-day and 52-week correlation coefficient between Bitcoin and Nvidia has risen above 0.80, indicating a high positive correlation where the two assets tend to move in the same direction.

2. How has the correlation between Bitcoin and Nvidia changed over time?

• The 90-day correlation has risen to 0.86, the highest since May 2023, after flipping positive in November.
• The 52-week correlation has been consistently positive since July 2020 and has now risen to 0.88, the highest since January 2023.

3. What are the implications of the high correlation between Bitcoin and Nvidia?

• The positive correlation is noteworthy as several analysts believe the surge in Nvidia represents an AI bubble that could soon burst.
• The statistical relationship raises concerns that the AI frenzy, similar to the dot-com bubble, could lead to a market correction.

[02] Concerns about an AI Bubble

1. What are the concerns about an AI bubble?

• Investment management firm GMO worries that the AI frenzy is similar to the dot-com bubble burst in 2000, and that the surge in AI stocks represents a "bubble within a bubble" that could start to deflate.
• Strategists at Citi believe that AI is the bubble, but it could last into 2025.

2. What is the basis for the concerns about an AI bubble?

• The launch of ChatGPT in December 2022 helped raise general awareness about artificial intelligence, and the subsequent love affair with AI stocks represents a "bubble within a bubble."
• Historically, technological revolutions have been accompanied by early massive hype and a stock market bubble as investors focus on the ultimate possibilities of the technology, pricing most of the very long-term potential immediately into current market prices.

3. What is the potential impact of an AI bubble bursting?

• If the AI bubble bursts, it could lead to a substantial period of disappointment, similar to the dot-com bubble burst in 2000, before the transformative potential of the technology is realized.