AI Frenzy: US Stocks Teeter as Market Faces 70% Drop, Crypto Holders Brace

In a bold pronouncement, veteran market strategist Jeremy Grantham warns that an AI-induced bubble has propelled US stocks to unprecedented valuations, potentially setting the stage for a staggering 70% decline. Grantham, co-founder of GMO, shared his concerns in a recent CNBC interview, signaling an urgent need for investors to reassess their portfolios and look beyond American equities.

The Timeline of AI Bubble Concerns

Grantham's warning isn't pulled from thin air. The market's price-to-earnings ratio has been significantly elevated, averaging over 60% higher since 2010 compared to the prior century. This inflation comes from years of easy money and low-interest rates. While acknowledging AI's transformative potential, Grantham argues that the current faith in AI has led to overvaluation, a sentiment mirrored by other Wall Street voices concerned about an AI bubble.

His historical track record lends weight to his warning. Grantham is the strategist who foresaw the dot-com bubble burst in 2000 and the US housing market crash in 2007. Though his epic bubble alert in 2021 might have been premature, as stocks initially rose before declining in 2022, Grantham's predictions have historically held substantial accuracy.

The Impact on Markets

If Grantham's forecast materializes, the repercussions won't be confined to the stock market alone. A deep sell-off could reverberate through the crypto world, too. Bitcoin, now behaving more like a tech stock than a traditional currency, would likely feel the heat first in a risk-off environment.

Already, signs of strain are evident. Recent US spot Bitcoin ETFs experienced a massive 30-day outflow of $6.35 billion through mid-June, according to Galaxy Research. This flight coincided with Bitcoin trading near $59,663. Grantham remains dismissive of crypto, reiterating his view that Bitcoin lacks intrinsic value and could plummet to zero.

While Grantham advises a pivot to non-US stocks, bonds, and precious metals, others aren't as alarmed. Bulls point out that today's AI companies are far from their dot-com ancestors. they've real profits, viable business models, and Federal Reserve Chair Jerome Powell even acknowledges AI spending as genuine economic activity.

: What Comes Next?

So, what does all this mean for crypto investors? Bitcoin's future may now rely heavily on the durability of the AI trade. As AI companies begin to report earnings, the market will assess whether the current optimism was justified or merely speculative excess. Will these earnings validate the high valuations or expose the gap between hype and reality?

Here's the thing: if AI earnings disappoint, it could trigger a shakeup not just in equities but in crypto markets as well. Investors who understand the symbiosis between tech stocks and Bitcoin will be watching closely. Does this mean it's time to reassess holding strategies? For those with crypto stakes, Grantham's warning is a reminder of the interconnected nature of modern markets.

In the end, whether Grantham's prediction is early or spot-on, the implications for both stock and crypto investors are profound. A downturn of the magnitude he forecasts would reshape the investment market, challenging assumptions and testing the resilience of assets tied to tech's fortunes.