Bitcoin Uptober Failed as Oil, Bonds and AI Broke Pattern: What Changed?

The slide came as the artificial intelligence (AI) trade cracked. Oil futures climbed as Treasury yields slid, breaking an 80% correlation seen this year. Meanwhile, Bitcoin dropped about 4% late Thursday, hours before Friday's Nasdaq selloff and instep with the historic hack of Binance.

AI stocks break correlation

Jeffrey Rosenberg, a senior portfolio manager at BlackRock, traces the break to AI stocks. The Magnificent Seven, the largest AI-linked US companies, retreated through October. Rosenberg said on CNBC that 'in the market's mind, the geopolitical risk is secondary to AI risk.'

Market signals shift

In Rosenberg's view, markets now read AI weakness as a warning for US growth. That pulled yields lower even as oil climbed. He calls third-quarter gross domestic product (GDP) strong and AI-related, with business investment rising 12.7%, the biggest gain outside the pandemic since 2011.

Fed Chair Kevin Warsh disagreed on Wednesday, arguing that capital spending is broadening beyond narrow pockets. Warsh also named rising oil as a factor in the central bank's inflation fight. Rate futures had pointed to a December hike by mid-October, as Fed rate hike bets built.

Google posted its largest one-day drop on record last week, erasing about $500 billion in value. Microsoft returned to the public bond market after nearly a decade. Rosenberg says the bond market can absorb an expected $4 trillion of AI debt over four years, with the AI buildout sitting at the center of bond pricing.