Remember when companies could announce a billion-dollar spending plan and watch their stock jump two billion the same day?
That surreal moment defined the past couple of years. Say the magic words “AI data center” or “Bitcoin treasury” and the market handed you what felt like free money. No one asked hard questions about cash flow or payback periods. The bigger the number, the bigger the pop. It was beautiful while it lasted.
Last week something quietly broke.
The End of the Free Money Era?
The Nasdaq 100 dropped more than 3%. The equal-weight S&P barely budged. Classic “rotation” on the surface, sure. But dig a layer deeper and you see two giant engines that powered the entire bull market suddenly sputtering at the same time: the hyperscaler AI build-out and the corporate crypto treasury trade.
Both ran on the same fuel—investors willing to pay any price for a story about the future. When that willingness fades, even for a moment, the math flips fast.
AI Capex: From Hero to Zero
Not long ago, every new data-center announcement was greeted like the second coming. Guidance calls became theatrical productions: “We’re increasing capex by another $15 billion because demand is infinite.” Stock up 8% before breakfast.
Now? The same companies can raise guidance and the stock barely shrugs—or worse, sells off on the news. The market finally asked the question it avoided for two years: Who exactly is paying for all this compute, and when do they start paying enough to justify the spend?
In my experience, once the reward for announcing spending disappears, the spending itself gets a hard second look in the boardroom. Projects that were “strategic” six months ago suddenly look discretionary when the share price punishes you for them.
The easiest money in history was made by simply outspending everyone else on GPUs and hoping monetization would appear later. That trade is on ice right now.
The Crypto Treasury Game Hits a Wall
On the other side of the ledger, the corporate Bitcoin treasury playbook was even more magical. Issue convertible debt at 0.5%, buy Bitcoin, watch the premium to NAV explode, repeat. Some companies managed to create tens of billions in market value essentially out of thin air.
That loop depended on one thing: investors willing to value the Bitcoin at a massive premium to the actual coins on the balance sheet. When the premium collapses toward NAV (and in some cases below), the free-money machine grinds to a halt.
Add in the growing risk that major index providers might kick these digital-asset-heavy companies out of broad benchmarks, and you have a recipe for forced selling from the exact passive complex that fueled the rise in the first place.
Think about that irony for a second. The same passive flows that turned these names into multi-baggers could now become the trap door.
Passive Investing Isn’t So Passive Anymore
I’ve been ranting about this for years, but it bears repeating: when “passive” owns more of the market than active, it stops being passive. Decisions about index inclusion become some of the most active bets on the board.
- Get added to the Nasdaq 100 → billions in mechanical buying
- Stay in the index at high weight → perpetual bid under the stock
- Risk of deletion → potential air pocket
We saw the upside when speculation swirled around certain crypto-heavy names joining major indices. Bitcoin itself ripped higher on the rumor flow alone. The reverse scenario is now in play, and the comment periods close soon.
If even a portion of these companies lose index eligibility, the mechanical selling will be real. And unlike human investors who can look through short-term noise, index funds have no choice.
The Wealth Effect in Reverse
Step back and the bigger picture gets uncomfortable.
We just watched roughly $650 billion evaporate from Bitcoin’s market cap in a matter of weeks. Add in the drawdown across the broader crypto complex and you’re easily north of a trillion dollars of paper wealth gone.
Most of that money never existed in the real economy to begin with—it was speculative markup. But perception is reality when it comes to spending behavior. The same people who were booking private flights on crypto gains are now looking at margin calls or at least a serious dent in confidence.
And thanks to ETFs, crypto exposure is no longer siloed in a separate wallet you can ignore. It shows up right alongside Apple and Microsoft in the same brokerage statement. That makes the drawdown feel a lot more real to a lot more people.
It was easy to HODL when the Bitcoin tab was separate from the retirement tab. Now it’s all one red P&L.
Correlation Creep and Risk-Parity Pain
Here’s something that keeps me up at night: the correlation between crypto and growth stocks has rarely been higher.
Discretionary traders can shrug and say “different assets, different drivers.” Risk-parity funds and vol-targeting strategies don’t have that luxury. They see volatility spiking and correlations tightening, and the algorithm says de-lever across the board.
We’re not at 2022 levels of forced selling yet, but the early warning lights are flashing.
What About the Fed?
The December meeting odds flip-flopped from 34% chance of a cut to over 60% in a single day. Classic market trying to force the Fed’s hand.
Personally? I think they should cut. Insurance against a deepening growth scare is cheap when inflation expectations are anchored. But the minutes suggest they’re still more worried about their credibility on the inflation fight than about a few percent drop in risk assets.
Either way, the bond market isn’t behaving like it believes a cavalry is coming. Ten-year yields actually rallied this week as a safe-haven flow, not because anyone expects aggressive easing.
Bottom Line—More Pain Possible
Look, I’m not ringing the recession bell yet. The underlying economy still has momentum in pockets—services, defense spending, some reshoring themes. But the marginal buyer for the past two years has been fueled by the twin miracles of AI hype and crypto treasury arbitrage.
Both of those marginal buyers just took a hard punch to the face.
Until we see evidence that AI monetization is real and accelerating—or that corporate Bitcoin treasuries can restart the flywheel without index support—I think the path of least resistance is lower for the former leadership group.
Rotation might continue into value and small caps for a while. But if the former winners keep bleeding without a bid, eventually the whole complex feels it.
The era of announcing spend and watching your market cap grow faster than the spend itself? That chapter looks closed for now.
And when free money stops flowing, everything that floated on top of it has to find its actual level pretty quickly.
Happy Thanksgiving, everyone. May your turkey be moist and your portfolio less volatile than mine feels right now.
