Why is the current AI frenzy not a bubble? This is a major positive for Bitcoin.

Author: Liam Wright; Source: CryptoSlate; Compilation: Shaw. Golden Finance

Bitcoin’s macro market trajectory is increasingly deeply tied to several core factors that are driving the S&P 500 to repeatedly set new highs: market liquidity, the degree of capital concentration and clustering, interest rate expectations, and investors’ tolerance for high valuations.

The current overall S&P 500 landscape still maintains a strong long-term upward trend. Weekly prices are nearing 7365, while various valuation indicators are in a historically high range.

This combination creates a somewhat favorable macro backdrop for Bitcoin in the short term, but it also comes with clear prerequisites.

As long as the upward trend in the stock market does not break, Bitcoin will continue to benefit.

Once overvalued U.S. stocks turn weak under the drag from interest-rate pressure, earnings falling short of expectations, or rising market volatility, market fragility will increase significantly.

By looking at the three-layer dimensions of the S&P 500 chart below, we can most clearly understand the current market operating structure.

S&P 500 index performance since 2019

The first layer is the price level.

U.S. stock indexes remain within a long-term bull-market uptrend channel, continually printing higher highs and higher lows. Even after the bursting of the internet bubble, the global financial crisis, the shock from COVID-19, the 2022 tightening cycle, and the recent AI-driven trend of capital clustering in U.S. stocks, the overall upward trend has never been broken.

The second layer is signals from equity risk premium indicators. The S&P 500 Economic Cycle indicator (SPX ECY) reads close to 0.70.

This value means that, relative to the current interest rate environment, investors are willing to accept lower risk compensation to hold stock assets.

The third layer is valuation.

An analysis of the standardized Shiller cyclically adjusted price-to-earnings ratio (CAPE) Z-value indicates: CAPE is about 38.34, the Z-value is close to 2.26, and the market has entered the “severely overvalued” range marked on the chart.

Independent CAPE datasets, including the Shiller CAPE data, also confirm the same overall pattern: compared with long-term historical averages, U.S. stocks’ current valuations are high.

For Bitcoin, the conclusion is straightforward.

As long as investors continue to treat high valuations as a normal feature of a long-term growth cycle, the current U.S. stock setup will keep being favorable for high-beta assets.

Within the risk-asset spectrum, Bitcoin’s risk attributes are higher than those of the S&P 500 and the Nasdaq.

When macro market confidence expands, capital inflows often transmit to Bitcoin in an amplified way. When macro confidence contracts, Bitcoin typically also suffers larger drawdowns and declines.

Valuation is elevated, but the trend still supports Bitcoin’s risk appetite

The S&P 500 chart reflects a reality: market valuations are already overextended, but the upward trend is still firmly intact.

This difference is the core key to judging Bitcoin’s next trajectory.

S&P 500 index performance since 1979

When earnings, liquidity, and market narratives align, high-valuation markets can sustain long-term upward moves.

• The late 1990s proved it: the tech-led bull-cycle can reach heights beyond imagination before valuation returns to rationality.

• The 2020–2021 cycle also showed: when liquidity expands, real yields fall, and speculative capital floods in all at once, the upside potential for risk assets is fully unlocked.

• The 2022 market cycle demonstrated the other side of this logic: rising interest rates suppress the prices of long-duration assets while exposing the fragility of capital’s clustered holdings.

The market backdrop today blends characteristics of the three periods above.

Just like the internet bubble era, the leading theme of this round of action is highly concentrated in disruptive technology themes. In a recent article, I also specifically compared this similarity and flagged potential risk signals.

In the late 1990s, the internet became the core reason the stock market could enjoy higher valuation multiples. Today, artificial intelligence is playing the same role.

U.S. stock indexes are increasingly dependent on a small number of mega-cap tech giants—so-called the “Seven Big Tech”—which account for the vast majority of S&P 500 gains while also holding extremely high index weights.

This kind of concentrated clustering of capital, when the leaders’ rally is favorable, can propel the index strongly higher.

But once the leaders weaken, the market’s tolerance for mistakes gets sharply compressed.

That said, today’s top tech companies have large revenue scales, high profit margins, and abundant free cash flow. This means the earnings fundamentals of the current stock-cycle are far stronger than the purely speculative internet bubble back then.

Even so, based on market operating signals, the current rally still carries characteristics of the late stage of a cycle.

The S&P 500 index keeps climbing, yet valuation support is thin. Risk premiums are squeezed down to low levels, and the rally relies heavily on market confidence in future productivity improvements.

And Bitcoin, precisely in this type of macro environment, often performs remarkably well.

When equity investors are willing to tolerate valuation being overextended in exchange for expectations of future growth, crypto investors often follow the same risk curve more aggressively.

This also explains why the current S&P 500 setup is overall favorable for Bitcoin rather than immediately turning bearish.

The market’s current pricing indicates that it has already incorporated optimistic execution expectations.

When downside risks are underestimated, market liquidity is ample, and investors believe that growth in the next stage can absorb the current valuation premium, Bitcoin often enters a strong rally.

Under this market paradigm, Bitcoin is no longer biased toward being a defensive hedge asset; it is more like a high-beta amplified instrument of macro market confidence.

Therefore, in the short term, the market direction is still tilted bullish.

As long as the S&P 500 holds its weekly uptrend, market volatility remains low, and AI-driven earnings expectations continue to attract institutional capital inflows, Bitcoin will remain supported.

In an upward stock market that sits in elevated valuation territory, Bitcoin can still be pulled higher. The reason is that allocation-oriented funds are more willing to pursue convexity-based returns.

In this environment, Bitcoin’s price gains often outperform the U.S. stock market—because its market cap base is smaller, it has stronger reflexivity, and it is more directly linked to liquidity expectations.

Bitcoin has shared the same liquidity channels as high-beta tech stocks

Bitcoin’s sensitivity to the stock market has changed profoundly over time.

In the early phases, market cycles were relatively independent. The trend was mainly driven by the halving narrative, offshore leverage, native crypto liquidity, exchange funds, and retail speculation.

These influencing factors still exist today, but the market structure led by institutions is no longer what it used to be.

In January 2024, the U.S. SEC approved a spot Bitcoin ETF, fundamentally changing Bitcoin’s access channels.

From then on, Bitcoin has been more easily incorporated into traditional investment portfolios, more convenient to model as a macro allocation asset, and also tradable as part of a broad basket of risk assets.

This shift brings two major results:

• First, thanks to the ETF’s massive pool of potential buyers, Bitcoin has a more solid structural demand channel than in previous cycles.

• Second, Bitcoin’s linkage to the macro variables that drive institutional investment portfolios has increased significantly.

Those institutional investors that express macro views through the S&P 500, Nasdaq, gold, U.S. Treasury futures, and volatility products can now incorporate spot Bitcoin ETFs within the same allocation framework.

This makes Bitcoin’s liquidity stronger and its asset compliance recognition higher, while also deeply tying it to the market environment across major asset classes.

Therefore, S&P 500 valuation indicators have reference value for Bitcoin. They reflect the risk appetite level of the entire investment-portfolio system.

Currently, the cyclically adjusted price-to-earnings ratio (CAPE) is close to 38, and the Z-value has broken above 2.26, meaning U.S. stock valuations are at a historically rare high.

This does not necessarily imply a sell signal will be triggered immediately, but it does reduce the market’s tolerance for negative surprises that fail to meet expectations.

At today’s valuation level, investors need company earnings to validate stock prices, interest rates to stop building renewed pressure, and market liquidity to remain ample.

As long as these supportive conditions hold, Bitcoin will continue to benefit.

If any one of these supports weakens, Bitcoin’s vulnerability will rise.

Among them, the interest rate channel is especially critical.

In an environment where real yields decline, liquidity expands, and the opportunity cost of holding non-yielding assets falls, Bitcoin often performs best.

The Federal Reserve’s interest rate framework—represented by the federal funds target rate range—is still the core pricing benchmark for all long-duration sensitive assets.

• When the market expects policy to turn toward easing, Bitcoin often rises ahead of the actual rate cuts.

• If high rates persist longer than expected, valuation support for speculative assets gets weakened.

The current U.S. stock market landscape shows: even in a high interest-rate environment, various risk assets still keep an upward trend.

This is an important signal.

It indicates that investors believe corporate earnings resilience, AI-related capital expenditures, and future productivity gains are enough to offset the drag caused by high interest rates.

For Bitcoin, this type of macro environment is relatively accommodative and friendly.

As long as capital keeps flowing into high-confidence growth themes, and institutional investors continue to look for assets with asymmetric return potential, Bitcoin can rise even without the boost of a zero-interest-rate environment.

The ETF channel amplifies Bitcoin’s upside potential while tightening its linkage to macro risk

Even if U.S. stock valuations are already too high, Bitcoin can still maintain a bullish bias because the market is no longer the 2020–2021 paradigm where pure liquidity dominated—all other variables were almost overrun by fiscal stimulus and ultra-low rates.

Today’s environment is more selective.

Capital is targeting assets that simultaneously have four traits: scarcity, technology characteristics, liquidity, and institutional acceptance.

Bitcoin fits this pricing logic perfectly.

The risk is that while institutional entry increases Bitcoin’s asset credibility, it also means that when portfolio managers reduce risk across the board, Bitcoin may be more likely to face concentrated sell-offs.

The historical key nodes on the U.S. stock chart provide an excellent analytical framework for assessing Bitcoin:

• The internet bubble era proved that technology narratives can push valuations far beyond traditional rational ranges until the cycle’s momentum runs out.

• The 2008 financial crisis showed that once the underlying financial system runs into problems, high valuations combined with high leverage can generate enormous risks.

• The 2020–2021 rally proved that when overall market risk appetite expands, abundant liquidity can drive Bitcoin to surge significantly higher.

• The 2022 inflation shock warns: once interest rates rise and liquidity tightens, investors stop being willing to pay a valuation premium for long-duration assets, and the Bitcoin price will rapidly reprice.

The current market environment is a rare combination of three factors: post-internet-era capital clustering, post-pandemic risk appetite, and interest-rate constraints after 2022.

This combination is exceptionally special:

• U.S. stock valuations remain high, yet the indices still climb steadily;

• Rates are far above the zero-rate era, but investors are still willing to build positions in growth assets;

• Artificial intelligence has replaced emergency-loosening liquidity and become the most core support logic behind high valuations;

• Bitcoin has upgraded from being a purely retail speculative target into an asset with mature institutional demand channels.

As long as the upward trend in the S&P 500 does not break, Bitcoin’s overall outlook remains bullish.

If U.S. stocks keep rising, Bitcoin will very likely continue to attract capital inflows for three reasons:

1. Investors are willing to allocate further toward the higher-risk end within the risk-asset spectrum;

2. Compared with broad-market tech stocks, Bitcoin can better amplify convexity-based returns when liquidity improves;

3. The structural channels formed by Bitcoin spot ETFs allow institutional capital to be allocated smoothly, no longer constrained by the operational friction costs of the early-cycle period.

The most crucial market signal right now is whether the S&P 500’s situation of high valuations persists alongside an ongoing uptrend, or whether high valuations coincide with a weakening trend.

The former supports Bitcoin’s rally; the latter would suppress it.

The S&P 500’s weekly trend of setting new highs indicates that investors are still willing to take on valuation risk. If the index fails to break through—market breadth narrows, volatility rises, and the AI leader rally weakens—the market signal will shift decisively.

At that point, Bitcoin will no longer behave primarily as a safe-haven asset like “Digital Gold,” but will be more aligned with the characteristics of a high-liquidity, high-beta risk asset.

U.S. stock upside momentum continues, and Bitcoin stays in a bullish pattern

This pattern has historical precedents.

During the March 2020 liquidity crisis, Bitcoin plummeted in sync with stocks, but then became one of the biggest beneficiaries of policy easing. In 2022, amid a surge in inflation combined with the Fed’s tightening cycle, speculative assets were under broad pressure, and Bitcoin fell sharply. From late 2020 to early 2021, liquidity expansion drove capital into the most reflexive assets, and Bitcoin’s rally far outpaced that of U.S. stocks.

These historical phases confirm: Bitcoin’s long-term scarcity narrative can coexist fully with short-term macro liquidity sell-offs.

When the market is under pressure, liquidity priority always stays higher than narrative logic.

Judging from the current market, the action is more inclined to continue rising rather than immediately switching into a defensive mode.

The S&P 500’s price structure still remains in a bullish form. Valuations may be overextended, but valuation being high alone rarely directly ends an entire bull-cycle.

Markets often need a catalyst to push elevated valuations into an active repricing phase. Potential catalysts include: earnings falling short of expectations, inflation reaccelerating, the Fed keeping high rates for longer, credit risks materializing, or a breakdown of the AI leader capital-clustering rally.

Until such catalysts land, Bitcoin can still continue to benefit from macro confidence that supports the upward move in U.S. stocks.

The practical takeaway is: Bitcoin is currently in a bullish but fragile rally zone.

As long as the S&P 500 holds its uptrend, volatility stays low, and liquidity expectations stabilize or even improve, the long position thesis for Bitcoin is the most solid. In this environment, Bitcoin has the potential to outperform the broader market because it sits at the high-beta end within the same risk spectrum.

The trigger for market risk is when the market no longer believes high valuations are sustainable, and instead treats high valuations as a vulnerability.

Before that happens, the U.S. stock market still maintains a risk-on stance, and Bitcoin is one of the clearest beneficiaries of this trend.