The big bitcoin rout tells a lot about a market that is fidgety

Crypto market rout

The big bitcoin meltdown has seen the speculative asset slide below the $86,000 levels driven down by heightened uncertainty that has gripped the US markets amid skepticism around the surging AI valuations. The fact that the crypto meltdown is happening despite whales like Michael Saylor of MicroStrategy being unfazed and continuing to buy shows that there is more to it than meets the eye.

That nervousness was clear as the Wall Street jostled to find a firm footing gyrating wildly and getting spooked by the frenzy around AI even as Nvidia posted a decent quarterly performance. The stock's topsy turvy trajectory that saw it going up 5% and then finally ending 3% lower showed the anxiety among investors.

The tech-heavy Nasdaq-100 ended down 2.4% on Thursday. Tech biggies including Alphabet Inc., Apple Inc., Microsoft Corp. had wild swings of more than $100 billion in their valuations. Nvidia's valuation tumbled $400 billion.

Crypto's wild run has finally evaporated as it enters a phase where betting on riskier assets has become challenging given the data fog that may make Fed's decision making process more convoluted. The now-reopened federal government has begun releasing key economic reports and the policymakers are banking on them to take a crucial rate-cut decision in around 3-weeks from now.

“Uncertainty lingers over how the Federal Reserve will set policy in the current data vacuum — and that uncertainty, more than anything else, is suppressing investors’ willingness to take on risk which is most evident in riskier assets,” Bloomberg quoted Jake Ostrovskis, head over-the-counter trading at Wintermute, as saying.

The main worry gripping investors in whether the US Federal Reserve will be able to cut rates or not. Along with the lofty AI valuations, this has markets in a tense situation leading to a meltdown across assets including cryptos. The stronger delayed-jobs report for September raised worries that the US Fed is done cutting rates.

“One of the things I’m watching right now is Bitcoin back to flirting with $90,000 because, like it or not, it’s become a real proxy for risk tolerance overall among investors,” Bloomberg quoted Steve Sosnick, chief strategist at Interactive Brokers Group Inc., as saying.

The AI bugbear is really making the investors jittery as they wonder whether the massive investments seen in the AI space will actually yield the rich dividends they are hoping for. That worry has investors hunting for the next big driver for the markets that they can latch on to.

That a blowout Nvidia earnings report couldn't salvage the day shows a lot about a market where pessimism is seen gripping the stakeholders and that is showing across assets as equities and cryptos take a beating.

It's all up to the Fed in December now.