Nervous Investors Sell Stocks & Bitcoin
Weekly Investment Update | By Brian Schreiner
Last week stocks, commodities, gold and bitcoin were down and bond prices edged higher.
Last Wednesday night, after a two-day market sell-off, Nvidia posted strong revenue and profits that exceeded Wall Street’s expectations. The company’s sales grew 62% year-over-year. Demand for its AI chips remains strong but investors are growing nervous about whether profits can keep pace with the massive capital expenditures (CapEx) in the space.
On Thursday, Nvidia was 5% in early trading but finished the day down over 3%. Both the Nasdaq and Dow saw intraday swings of more than 1,000 points, marking one of the biggest intraday sentiment shifts in recent memory.
Uncertainty about the impact of potentially over-investment in AI infrastructure lies at the heart of the AI bubble concerns and it’s starting to shake investor confidence. Investors are also questioning circular funding deals within the industry, such as Nvidia’s $100 billion investment in OpenAI in exchange for chip purchases that was announced in September. OpenAI Chief Financial Officer Sarah Friar further raised eyebrows earlier this month when she suggested that the government should backstop the debt tech companies are taking on to build AI infrastructure.
What Do AI and Railroads Have in Common?
When was the last time in American history that massive CapEx from an industry transformed the economy?
The dot-com boom and bust comes to mind, but a more relevant comparison might be post Civil War era of massive expansion in the railroad industry. Corporations expanded massively and rapidly. Competition was fierce. The railroads did transform the US economy from a regional agrarian economy to a national industrial one. But the massive investments and fierce competition caused several railroads to go bankrupt.
There were two market crashes: 1873 and 1893. Investors realized that their returns on capex wouldn’t be as much or as fast as they expected. There were railroads built literally side by side and the intense competition drove down ticket prices to levels that could not sustain the railroad companies' operational costs. The overbuild and intense competition provided a valuable service to the economy but turned out to be a bust for investors betting on big profits from the industry.
The concerns investors are having now about the AI expansion are well placed. On the surface, the benefits of AI are clear, but for most users AI is basically an upgrade on internet search capabilities–and it's mostly a free service provided by Google and other search engines.
AI competition will continue to intensify and returns are likely going to be lower than expected. Many LLMs are running side by side now and we likely won’t need all of them. Chinese models have already started to emerge and may be just as good and far cheaper.
Bitcoin Plummets
The sell-off in bitcoin intensified last week as the price of the most widely traded cryptocurrency sank to the lowest level in seven months. Bitcoin fell through a major support level and was trading around $85,000 on Friday afternoon, down from its record price of about $125,000 reached in early October. This afternoon it’s trading around $88,800.
It’s hard to know what’s driving the selling, but our research suggests there are a few likely reasons:
The risk-off mood broadens. The sell-off isn’t driven by a single catalyst but a combination of market psychology, broader economic pressures, and shifting investor behavior. Bitcoin has been behaving less like an independent monetary asset and more like tech stock, moving closely with the tech-heavy Nasdaq 100 Index as investors de-risk across the board.
Global liquidity is declining. The price of bitcoin has been correlated with global liquidity flows. Global liquidity, which refers to the total amount of readily available money and credit in the financial system, dictates the financial environment. When central banks implement loose monetary policy, keeping interest rates low, the opportunity cost of holding cash is minimal, which encourages investors to move funds to more aggressive assets like bitcoin.
Conversely, when liquidity tightens (e.g., central banks raise rates and engage in quantitative tightening), the cost of borrowing rises, and investors shift to a risk-off posture. Last week, the Fed signaled a more hawkish tone, meaning that they may not be cutting interest rates in their next meeting. Because bitcoin does not generate revenue or pay dividends, its valuation is, to some degree, dependent on global liquidity conditions.
Bitcoin miners are selling and changing their business models. Matthew Sigel, Head of Digital Assets Research at VanEck, believes the recent Bitcoin sell-off is primarily a result of the "AI trade" taking significant capital and focus away from crypto, combined with strategic selling by Bitcoin miners.
Sigel explains that the AI market has provided "better things to buy," causing investors to prioritize tech-related growth, which has drawn capital that might otherwise have flowed into crypto. This shift has also created a direct correlation where Bitcoin is now acting as a "little bit of leverage" on the AI trade, meaning when AI-linked stocks sell off, Bitcoin tends to follow.
A key fundamental driver of the selling, according to Sigel, is the behavior of Bitcoin miners. They are aggressively pivoting their facilities from Bitcoin mining to servicing the AI market, which requires significant CapEx to upgrade their data centers with high-end GPUs. To fund this expensive pivot, the miners have been "literally selling Bitcoin" and raising debt.
In our view, there is still plenty of downside risk and upside potential for bitcoin, which makes it difficult to trade. We have reduced our allocation to take profits and reduce exposure during what could be an extended bear market in bitcoin.
The recent drawdown is historically normal. Over the last decade, bitcoin has seen 21 drawdowns of 30% or more, seven of which exceeded 50%. This level of volatility might feel like a lot for investors used to assets with less volatility, but for bitcoin, it’s pretty routine and offers an opportunity for investors who have been looking for a more attractive entry point.
“…if you take the numbers in this chart seriously, the hyperscalers will hold at least $2.5 trillion in AI assets by the end of this decade. Assuming a depreciation rate of 20%, that would generate $500 billion in annual depreciation expense. This is more than their combined profits for 2025.”
Peter Berezin, Chief Global Strategist, BCA Research, When Capex Booms Turn Into Busts, November 13, 2025
When CapEx Booms Turn Into Busts (BCA Research)
Jim Cramer: The Year of Magical Investing is Over (CNBC)
The U.S. Is Not a Low-Tax Country Despite What You've Been Told (Real Clear Markets)
Chess boxing: a sport where brain meets brawn (60 Minutes)
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