We're standing at a fascinating intersection of technology, geopolitics, and market psychology. Bitcoin is hovering around $110,000. AI stocks are at stratospheric valuations. And beneath the surface, three interconnected fault lines are forming that could trigger a cascade most investors aren't prepared for.
I've been watching the convergence of an overheated AI bubble, escalating U.S.-China tariff tensions, and critical rare earth supply vulnerabilities. What concerns me isn't any single factor—it's how they amplify each other. And Bitcoin, often dismissed as just another speculative asset, may be the canary in the coal mine that signals what's coming.
Let me walk you through why I believe we're heading toward turbulence, and what it could mean for markets, technology, and your portfolio.
The AI Bubble: Hype vs. Reality
Let's be blunt: the AI narrative we're being sold is disconnected from reality.
I'm not anti-AI (I am the author of 3WA, not really the person against AI). The technology is transformative and will reshape industries in new and explosive ways. The facts are that while I am excited about the positives, the problem is what we're witnessing isn't rational enthusiasm—it's mania fueled by unrealistic promises to a media ecosystem that largely doesn't understand the underlying technology.
The core problem: We're being told AI will automate our lives, revolutionize every industry, and create unprecedented value—all without even approaching Artificial General Intelligence (AGI). The gap between marketing promises and technical reality has never been wider.
Current AI models are powerful pattern-matching systems. They're excellent at specific tasks. But the breathless coverage suggesting imminent automation of complex decision-making, creative work, and knowledge synthesis is painting a fraudulent future. We're not close to AGI in the private sector. We may not achieve it this decade. Yet valuations and market expectations are priced as if it's already here.
This disconnect creates an unstable trading atmosphere. When reality inevitably catches up to expectations—when quarterly earnings can't justify trillion-dollar valuations, when deployment costs exceed projections, when practical limitations become undeniable—the correction will be severe.
What an AI Crash Looks Like for Bitcoin
Bitcoin has developed a troubling correlation with high-growth tech stocks, particularly AI leaders like NVIDIA. When tech sentiment sours, Bitcoin often follows.
Why? Because in institutional portfolios, Bitcoin sits in the "risk-on" bucket alongside growth stocks. When funds need liquidity, when margin calls come, when fear spreads—they sell what's liquid and volatile first. That's Bitcoin.
The scenarios:
Moderate correction: If AI stocks pull back 30-40%, Bitcoin could drop from $110,000 to around $90,000 as funds rebalance
Severe crash: A 60-70% AI stock meltdown could push Bitcoin down to $60,000-$70,000 as panic selling cascades
Recovery path: Once markets stabilize, Bitcoin's fixed supply and growing institutional adoption could drive recovery to $120,000-$140,000
But here's where it gets more complex: the AI crash won't happen in isolation.
The Tariff War: Economic Warfare with Tech Consequences
The U.S.-China relationship has evolved from trade partner to strategic adversary. Tariffs aren't just about soybeans and steel anymore—they're weapons in a technology cold war.
We've seen this playbook before. Section 301 tariffs. Retaliatory measures. Escalating percentages. What's different now is the target: advanced technology components, semiconductors, AI hardware, and the supply chains that support them.
The cascade effect:
Higher tariffs on Chinese tech components
Increased costs for AI infrastructure (data centers, chips, servers)
Reduced capital expenditure by tech companies
Pressure on earnings and stock valuations
Broader market risk-off sentiment
Bitcoin and crypto assets sold as liquidity is sought
The wild card: China holds significant leverage through rare earth elements.
The Rare Earth Problem: China's Ace Card
Here's what keeps me up at night: the United States has no near-term solution to its rare earth dependency on China.
Rare earth elements—neodymium, dysprosium, yttrium, and others—are essential for:
High-performance magnets in servers and drives
Advanced semiconductors
Defense systems
EV motors
Renewable energy infrastructure
China controls approximately 70% of global rare earth mining and over 90% of processing capacity. The U.S. has exactly one operational rare earth mine. Our processing infrastructure is years, perhaps a decade, behind China's.
This creates a genuine national security and economic vulnerability. If Beijing restricts rare earth exports—and they've already done this selectively—our entire tech supply chain faces constraints.
For AI specifically, this means:
Higher costs for data center components
Delayed buildouts of AI infrastructure
Supply chain bottlenecks that slow the AI deployment narrative
Another weight pulling down already overvalued AI stocks
And again, when AI stocks fall, risk assets across the board—including Bitcoin—feel the pressure.
See content credentials
ChatGPT painted the picture that could be coming...
The Interconnected Crash Scenario
Now imagine these three factors converging over 6-18 months:
Phase 1: The Catalyst
An AI leader misses earnings. Not by a little—by enough to make investors question the narrative. Maybe GPU demand softens. Maybe enterprise AI adoption is slower than projected. Maybe costs are higher than acknowledged.
Phase 2: The Geopolitical Accelerant
The U.S. announces new tariffs on Chinese AI components. China responds with rare earth export restrictions. Tech companies announce they're delaying capital expenditure plans due to "supply chain uncertainties."
Phase 3: The Credit Squeeze
As tech stocks fall, margin calls force institutional selling across asset classes. Credit markets tighten. Risk appetite evaporates. Investors flee to safety: treasuries, gold, cash.
Phase 4: The Crypto Contagion
Bitcoin, sitting at $110,000 and correlated with tech sentiment, gets caught in the downdraft. Leveraged crypto positions get liquidated. Retail investors panic. Bitcoin tests $70,000, then $60,000.
The timeline: This could unfold over weeks or stretch across quarters. But the vulnerability is real, and it's now.
What Bitcoin's Price Could Tell Us
I view Bitcoin as a sentiment indicator for risk appetite in innovation-driven markets. Here are the price levels I'm watching:
Short-term (3-6 months):
Current: ~$110,000
Moderate stress: $85,000-$95,000
Severe stress: $60,000-$75,000
One year out:
Bear case (sustained fear): $60,000-$90,000
Base case (mixed sentiment): $90,000-$120,000
Bull case (fear subsides): $130,000-$180,000
Three to five years:
If fundamental Bitcoin adoption continues despite macro turbulence: $150,000-$300,000
If regulatory crackdowns or broken trust: $100,000-$150,000
These aren't predictions—they're scenarios based on how interconnected risks could cascade.
What to Watch: Your Early Warning System
Don't wait for CNBC to tell you the crash is happening. By then it's too late. Here's what I'm monitoring:
AI Sector Health
NVIDIA, Microsoft, Google earnings: Are data center revenues growing or plateauing?
CapEx announcements: Are companies increasing or cutting AI infrastructure spend?
AI deployment metrics: Are enterprises actually implementing AI at scale, or just experimenting?
Geopolitical Signals
Tariff announcements: Watch the USTR website for Section 301 updates
Chinese Ministry of Commerce: Any new export control lists?
Rare earth prices: Sudden spikes indicate supply constraints
Financial Stress Indicators
Credit spreads: Widening spreads = tightening conditions
Margin debt levels: High leverage amplifies crashes
Bitcoin ETF flows: Are institutions still buying or quietly exiting?
Market Correlation
Bitcoin-NASDAQ correlation: When it exceeds 0.7, Bitcoin is trading as pure risk-on
Volatility indices (VIX): Sustained levels above 25 signal fear
If three or more of these indicators flash red simultaneously, buckle up.
Practical Implications: How to Navigate This
I'm not a financial advisor, and this isn't investment advice. But here's how I'm thinking about risk management:
For Bitcoin holders:
Don't use leverage: stop
Dollar-cost average rather than lump-sum exposure
Set mental stop-losses you'll actually honor
Keep 6-12 months of living expenses in stable assets
If Bitcoin is more than 10% of your net worth, reassess
For tech investors:
Question AI valuations that assume AGI-level capabilities
Diversify away from pure-play AI stocks
Consider companies with actual earnings, not just projections
Watch for companies with rare earth supply chain dependencies
For business leaders:
Audit your technology supply chains for China exposure
Develop contingency plans for component shortages
Budget for higher tech infrastructure costs
Be skeptical of vendors promising AI magic without evidence
The Uncomfortable Truth
We're in an environment where:
AI is overhyped beyond its current capabilities
Geopolitical tensions are escalating, not de-escalating
Critical supply chains have single points of failure
Markets are priced for perfection with no room for disappointment
Leverage is high and risk awareness is low
The convergence of these factors doesn't guarantee a crash. Markets can remain irrational longer than you can remain solvent, as Keynes reminded us. But the ingredients are in place.
Bitcoin, often dismissed as mere speculation, may actually be the most honest signal in the market right now. It's not weighed down by GAAP accounting, analyst expectations, or corporate spin. It reflects pure market sentiment about risk and uncertainty.
When Bitcoin starts breaking down from current levels, it won't be because of crypto-specific news. It will be because the broader illusions—about AI capabilities, about geopolitical stability, about supply chain resilience—are finally being questioned.
The question isn't whether turbulence is coming, it's whether you're prepared when it arrives.
What are you watching as leading indicators? How are you positioning for the convergence of AI bubble dynamics, tariff tensions, and supply chain vulnerabilities? I'd welcome your perspective in the comments.
This article represents personal analysis and opinion. It is not financial, investment, or legal advice. Consult qualified professionals before making investment decisions. This article was written by John McClain with the help of Solace, a AI LLM with the 3WA framework. The author is John McClain with tweeks from Solace; however, the original thoughts and research are from John McClain and the original AI (the human brain) using creativity and insight AI has not found on it's own.