A wave of speculative fever is sweeping through the artificial intelligence sector, pushing valuations to historic heights. But as the excitement increasingly outpaces measurable profits and performance, analysts are warning of an inflating bubble—one whose eventual pop could send shockwaves through the Bitcoin and broader cryptocurrency markets.

Inflated Valuations and Circular Funding

The current AI boom is fueled by a massive influx of capital, creating a dynamic reminiscent of the dot-com era. The concern isn’t just about high valuations but how that money circulates. Many AI firms are investing heavily in each other’s services and hardware, creating a feedback loop where spending is counted as growth, inflating balance sheets with future expectations rather than current profits.

This cycle is on full display with major industry players. OpenAI, once a nonprofit research lab, now operates with a for-profit model that requires tens of billions in annual revenue just to cover its massive computing and energy costs. The company has sought U.S. federal loan guarantees to support its infrastructure projects, a move that Chief Financial Officer Sarah Friar confirmed was intended to lower borrowing costs for its planned data centers and a $300 billion partnership with Oracle.

This reliance on external support has drawn skepticism. Julian Brigden, co-founder of Macro Intelligence 2 Partners, questioned why a company projected to earn “hundreds of billions of dollars” would need taxpayer guarantees, suggesting it could be a sign of liquidity pressure. The financials seem to support this concern. In the first half of 2025, OpenAI reportedly lost $13.5 billion on $4.3 billion in revenue, yet it was still seeking an IPO valuation near $1 trillion.

The problem of questionable returns isn’t isolated. A Massachusetts Institute of Technology study found that despite $30 to $40 billion in enterprise spending on generative AI, 95% of companies reported no measurable return on their investment. Market analyst Hedgie described the situation as “circular financing,” likening it to giving a lemonade stand $10 to buy lemons and then counting the transaction as $20 of economic growth. This effect was so pronounced that in the first half of 2025, data center investment became one of the largest contributors to U.S. GDP growth, driven by corporate spending rather than consumer-driven revenue.

A Contagion Risk for Crypto

The market’s exuberance is best symbolized by Nvidia. By July 2025, it had become the world’s most valuable company with a $4 trillion market cap—four times its 2023 level. Three months later, its valuation exceeded $5 trillion, a figure larger than the GDP of any country except the United States and China. With AI-related firms responsible for roughly 80% of all U.S. stock market gains in 2025, the market’s foundation has become increasingly narrow and concentrated.

This concentration has not gone unnoticed. Michael Burry, the investor famous for predicting the 2008 housing crisis, has placed a significant short bet against the sector. His firm, Scion Asset Management, purchased put options worth hundreds of millions against Nvidia and Palantir, signaling a belief that their valuations are due for a sharp decline.

This anxiety is already spilling over into digital assets, which often track the performance of technology stocks. As fears of an AI-led downturn grew, the total crypto market capitalization fell 18% in a single month, from $4.2 trillion on October 6 to $3.43 trillion a month later. Bitcoin saw a similar decline of nearly 19% in the same period, dropping from $126,000 to approximately $103,000 by November 6 in one of its steepest monthly corrections in years.

Even Sam Altman, CEO of OpenAI and a central figure in the AI boom, admitted in 2025 that an investment bubble was forming. As his own company’s valuation soared from $157 billion to around $500 billion in less than a year, his acknowledgment highlights the growing consensus that the market’s foundations may be unstable. For crypto investors, the critical question is no longer if the AI bubble will correct, but how deep the fallout will be when it does.

Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial advice, investment advice, or any other sort of advice. You should not treat any of the website’s content as such. Always conduct your own research and consult with a professional financial advisor before making any investment decisions.

Several prominent investors are drawing parallels between the current artificial intelligence market and previous speculative bubbles. Ray Dalio, co-chief investment officer of Bridgewater Associates, stated in early 2025 that the scale of AI investment looks remarkably similar to the dot-com boom. JPMorgan CEO Jamie Dimon echoed this sentiment in October, remarking that while AI is a genuinely transformative technology, a significant portion of the capital flowing into it may ultimately be lost. He warned that markets could be underestimating the risk of a major stock correction within the next two years.

Major financial institutions have also voiced caution. The Bank of England warned that the valuations of leading AI firms could prove unsustainable if their infrastructure needs outpace efficient financing and management. Its report highlighted that investors weren’t sufficiently warned about the potential for a sharp downturn if AI fails to deliver on its expected performance and profitability. Similarly, the International Monetary Fund drew a clear link to the 2001 dot-com collapse. Managing Director Kristalina Georgieva cautioned that a sudden AI market correction could slow global growth and disproportionately harm developing economies.

However, not all outlooks are negative. Goldman Sachs offered a more optimistic interpretation, arguing that the surge in U.S. technology stocks might be supported by durable profit growth. The firm noted that current valuations remain moderate compared to the late 1990s. Federal Reserve Chair Jerome Powell also suggested that AI differs from earlier bubbles because many companies in the sector are already generating real revenue, pointing to data center construction and related infrastructure spending as tangible economic activity.

Bitcoin Feels the Ripple Effects

As investor sentiment weakens amid rising economic uncertainty, Bitcoin remains under pressure. According to data from CoinGlass, the asset has fallen nearly 11% this quarter, making it the second-worst Q4 performance since 2020. October saw a 3.85% decline, its weakest showing for that month since 2018.

Reflecting this environment, Alex Thorn, Head of Firmwide Research at Galaxy, lowered his year-end Bitcoin target from $185,000 to $120,000. In a note to clients, he cited that large holders are selling coins, corporate interest in holding Bitcoin on balance sheets has diminished, and investors are diversifying into other assets. While Thorn remains optimistic about Bitcoin’s long-term outlook, he expects short-term weakness due to tightening liquidity and a slowdown in institutional demand.

On-chain data supports this cautious view. Analyst Maartunn observed that long-term holders currently control about 73.6% of Bitcoin’s total supply, a figure near record highs. Despite this, approximately 363,000 Bitcoins have moved from long-term to short-term wallets in the past month, signaling active profit-taking. In this cycle, seasoned holders are selling while newer investors absorb the supply.

Older wallets are also showing increased activity. Over the past year, more than 1.17 million Bitcoins that were dormant for three to five years have been spent, along with several hundred thousand from even older addresses. Maartunn noted that the market is at a crossroads. If short-term holders maintain their positions, prices could stabilize. However, if they begin selling aggressively, the next downturn could be severe. This dynamic, combined with a global economy under pressure, creates a complex risk environment for crypto investors.

Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial advice, investment advice, or any other sort of advice. You should not treat any of the website’s content as such. Always conduct your own research and consult with a professional financial advisor before making any investment decisions.