The AI scare trade has been used to explain price drops across multiple industries. Crypto has also fallen with the rest of the market, also falling prey to the influential market narrative.
The AI scare trade spread contagion across markets. The narrative that new AI-powered tools can upend business models of major industries caused panic selling in multiple sectors of the stock market.
The AI scare trade first showed its effect in January and has since become a major narrative over the past two weeks. The first industry to be affected was software, as the S&P software industry index dropped by over 18% in the year-to-date.
The narrative spilled over to other stocks, including private credit companies, insurance, real estate, precious metals, and other markets.
At this point, it remains unclear if AI-based products really exist to disrupt entire industries and their know-how. Yet even the expectation is enough to exacerbate the price drop.
Will crypto survive the AI scare trade?
BTC has historically behaved in ways similar to NASDAQ, though with a higher volatility. In this case, BTC is tracking the software industry index, with deeper losses in 2026.
During the latest overall market downturn, BTC slid into the $65,000 range, showing vulnerability to the AI scare trade in the short term. The price of BTC has not reacted to news of AI agents being deployed in the crypto ecosystem.
In the past weeks, the AI scare trade showed that development did not lead to market optimism and did not lift all boats. This added to the uncertainty for BTC, extending the slide, as there are no signs of aggressively buying the dip. The AI scare trade arrived at a time of peak market uncertainty, causing a worsening spiral of market sentiment.
Is the AI scare trade real?
In the past day, the AI scare trade affected the logistics industry, where claims were made that AI products could resolve freight stress points and increase capacity.
The latest market downturn, which affected trucking and logistics, was caused by a suspiciously obscure company.
The new potential AI product to disrupt logistics came from Algorhythm Holdings, Inc. The company trades near a five-year low, and only relies on OTC pink sheet listings for its liquidity.
Algorythm Holdings (RIME) traded near a five-year low, and not even the hype around its potential AI product could lift its stock price. RIME traded at around $1 after the news. Before switching to the AI narrative, Algorhythm Holdings sold consumer-oriented karaoke equipment.
The performance of RIME suggests the AI scare may be caused by hype, and potentially dissipate with time and skepticism. The only worry is that there are no investors left to buy the dip on stocks, metals, or crypto, mostly due to the fear of further irrational price drops.
If the AI scare narrative reverses, it may lead to more confident buying and a potential recovery. For now, any industry can fall to the narrative’s influence, only based on a future product announcement.
* The content presented above, whether from a third party or not, is considered as general advice only. This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.
