Major Crypto Sell-Off Rattles Global Markets
The cryptocurrency market has experienced a dramatic downturn over the past six weeks, with more than $1 trillion (£760 billion) wiped off its total value. This sharp decline comes amid growing concerns about a potential technology bubble and shifting expectations regarding US interest rate cuts.
According to data from CoinGecko, which tracks over 18,500 different coins, the entire crypto market has fallen by a quarter since reaching a peak in early October. The flagship cryptocurrency, Bitcoin, has been hit particularly hard, dropping 27% to $91,212 – its lowest price point since April.
Tech Sector Anxiety Spreads
The turmoil in digital assets coincides with increasing nervousness across global financial markets. The UK's leading FTSE 100 index fell 1.2% on Tuesday, marking its fourth consecutive day of losses. European markets followed suit, with the Stoxx Europe 600 also declining by 1.2%.
The sell-off was even more pronounced in Asia, where Japan's Nikkei 225 index plummeted 3.2% and Hong Kong's Hang Seng dropped 1.7%. This broad-based decline reflects mounting anxiety about overheated valuations in the technology sector, particularly surrounding artificial intelligence.
Adding weight to these concerns, Sundar Pichai, the chief executive of Google's parent company Alphabet, acknowledged in a BBC interview that there is currently "irrationality" in the AI boom. He issued a stark warning that "no company is going to be immune" if the AI bubble were to burst.
Investment Experts Voice Concerns
The alarm bells are ringing beyond the crypto space. Sebastian Siemiatkowski, CEO of the financial firm Klarna, expressed particular concern about the enormous sums being invested in computing infrastructure to support AI development. He told the Financial Times that the scale of these investments made him "nervous."
Siemiatkowski highlighted the soaring valuation of AI-focused companies like chipmaker Nvidia, which earlier this year became the first company to reach a $4 trillion market value. He cautioned that because of index funds, ordinary people's pensions are now being automatically allocated to these high-risk tech investments.
A recent Bank of America survey confirmed that professional investors share these worries, with 45% of fund managers identifying an AI bubble as the biggest tail risk facing stock markets.
Even traditional safe-haven assets have felt the pressure. The spot price of gold fell 0.3% to $4,033.29 an ounce, reaching its lowest level in a week. This decline is partly attributed to fading expectations that the US Federal Reserve will cut interest rates next month, as higher rates make non-yielding assets like gold less attractive.
However, not all analysts are pessimistic about the long-term outlook. Giovanni Staunovo, an analyst at Swiss investment bank UBS, suggested that gold prices would likely bottom out soon, anticipating that the Fed will still implement several rate cuts in the coming quarters.
