Key takeaways:
- Volatility in the Big Tech sector, coupled with concerns over Fed policy, has weighed on risk assets, pushing Bitcoin’s correlation with the Nasdaq to its highest level in months.
- Meanwhile, crypto traders are anticipating improved liquidity as U.S. fiscal pressures mount and former President Trump advocates a tariff-driven stimulus plan.
The tech-heavy Nasdaq Index fell 4% intraday on Thursday, despite strong earnings and forecasts from chipmaker Nvidia. Investor concerns over rising spending in the artificial intelligence sector also weighed on Bitcoin, which dropped below $86,000 for the first time since April.
Billionaire investor Ray Dalio acknowledged the market’s frothy valuations but said there is no clear trigger for an imminent crash. Speaking to CNBC, Dalio described the market as “in that territory of a bubble” and recommended diversifying into scarce assets such as gold. He noted that his primary worry is higher wealth taxes, rather than tighter monetary policy.
However, market sentiment shifted after the U.S. reported a stronger-than-expected jobs report for September, raising doubts that the Federal Reserve would ease policy further. Nonfarm payrolls increased by 119,000, reversing the prior month’s decline. Minutes from the October FOMC meeting highlighted that most participants saw additional rate cuts as a potential risk for entrenched inflation.
On Thursday, traders trimmed the odds of two interest-rate cuts by January 2026, reflecting renewed caution among equity and Bitcoin investors.
Investor expectations for Fed policy have shifted sharply. Based on implied pricing in government bond markets, the probability of the FOMC setting interest rates at 3.50% on Jan. 28 has dropped to 20%, down from 55% a month ago. While the October FOMC minutes indicate that many policymakers are not in favor of an immediate rate cut, they provide little clarity on how close the split decision actually was.
Concerns over AI spending are outweighing strong corporate results. Despite positive earnings surprises, including Walmart’s better-than-expected report, traders worry the economy could soften as AI developers like OpenAI continue heavy investment. Gil Luria, head of technology research at D.A. Davidson, told CNBC, “The concern is about companies raising a lot of debt to build data centers.”
Luria described data centers as “inherently speculative investments that could face a reckoning two or three years from now,” cautioning that Nvidia’s strong earnings are not a “reliable gauge of whether AI economics are truly maturing.” The tech-heavy Nasdaq Index has fallen 7.8% since its all-time high on Oct. 29, erasing gains from the past 10 weeks, as investors retreat from riskier assets.
Amid heightened uncertainty, Bitcoin’s price continued to track trends in the tech sector. The correlation between the two asset classes has risen to a six-month high of 80%, indicating that investors are paying less attention to Bitcoin’s traditional strengths, such as decentralization and predictable monetary policy.
Traders are not necessarily bearish below $90,000, instead likely waiting for clearer entry points as broader macro conditions remain unstable. If Ray Dalio’s view holds, panic sellers could later regret their exits, as liquidity may improve while U.S. fiscal pressures persist and President Donald Trump advances his “tariff dividend” proposal to stimulate the economy.
