Unlocking the Power of Bitcoin: The Unprecedented Correlation with Nvidia You Need to Know About
- The correlation coefficient between bitcoin and Nasdaq-listed chip maker Nvidia has risen above 0.80 for both the 90-day and 52-week periods.
- This positive correlation is notable given that some analysts believe the surge in NVDA’s valuations could be indicative of a potential AI bubble.
The price of bitcoin (BTC) has been closely correlated with the value of Nvidia (NVDA) shares in recent times as experts question the rise in the chip maker’s stock price.
Although it has dropped by 8% since its record high of $73,798 on Thursday, BTC is still up by 60% for the year so far according to CoinDesk data, while NVDA has seen a gain of 77.5% this year despite a 9% drop from its all-time high of $974.
Over the last five years, the market capitalization for BTC has soared from $70 billion to $1.43 trillion, while NVDA’s market value has similarly increased from around $100 billion to more than $2 trillion.
The surge in interest in Nvidia processors for projects such as ChatGPT and other AI applications has been a major factor in driving up the company’s stock prices.
The 90-day correlation coefficient between BTC and NVDA has reached 0.86, which is the highest it has been since May 2023, after flipping positive in November according to data from TradingView. The 52-week correlation has remained consistently positive since July 2020 and has now reached a value of 0.88, the highest it has been since January 2023.
Correlation coefficients above 0.80 indicate a strong correlation between two variables, suggesting that BTC and NVDA have been moving in the same direction.
The strong correlation between the two is significant as some market analysts, including GMO investment management firm, have expressed concerns that the AI frenzy could be a bubble similar to the dot-com burst in 2000.
ChatGPT’s launch in December 2022 helped to raise awareness about AI, leading to a surge in AI stock prices which has been described by GMO Chief Investment Strategist Jeremy Grantham as a “bubble within a bubble”. Both BTC and the tech-heavy Nasdaq index hit their lowest points in December 2022.
“Every technological revolution, from the internet to telephones, railways, or canals, has been accompanied by a massive hype in the early stages and a stock market bubble as investors focus on the potential of the technology, leading to most of the long-term potential being priced into current market prices,” Grantham wrote in a paper published on Monday, describing AI as a bubble.
“Most of these revolutions end up being as transformative as the early investors had predicted, and sometimes even more so, but only after a period of disappointment when the initial bubble bursts,” he added.
Meanwhile, analysts at Citi have suggested that AI is currently experiencing a bubble, but it could continue until 2025 according to a report by Investing.com.
