Token AI plummets sharply after 'significant divergence': Is a tech bubble forming?

The altcoin market is experiencing a clear weakening phase as liquidity flows continue to shrink. Selling pressure is spreading but not evenly distributed across asset groups, with the Artificial Intelligence (AI) segment becoming the most heavily impacted, recording a rare deep decline in recent history.

This development is seen as a signal that the market may be entering the early stage of a broad correction, amid more cautious investors re-evaluating their risk appetite ahead of the closing of the 2025 trading year.

Is the AI bubble forming?

Concerns are spreading across the market as tokens and stocks related to artificial intelligence (AI) are warned to be at risk of entering a bubble, largely due to rising unemployment risks.

Past employment data has shown a close relationship between the labor market and macro assets, especially the S&P 500 index. When employment grows, these assets are usually supported; conversely, declines in employment often coincide with market downturns.

However, recent analysis from Alphractal indicates an increasingly clear divergence between employment data and stock market performance. Specifically, the labor force participation rate is currently only 59.4% — a sharp decline from the 64.6% peak in October 1999 — yet the S&P 500 has still gained 17.81% since the beginning of the year.

Source: Alphractal According to Alphractal, this divergence stems from the continuous outperformance of AI-related assets, pushing the stock market upward despite worsening labor conditions.

“What makes the current picture particularly interesting is that key labor indicators remain weak: the number of official jobs has decreased, while the S&P 500 is increasingly dominated by AI — a sector that creates relatively few actual jobs,” the company notes.

Although the market has entered a downtrend, current conditions still resemble previous bubble phases, although the timing of a comprehensive correction remains difficult to pinpoint.

Alphractal concludes:

“It is very likely that by 2026, a clear weakening signal will emerge, and many analysts may call this an underlying AI bubble.”

AI tokens take a heavy hit

The recent market decline closely follows the downward trend of AI stocks, demonstrating the long-term link between the stock market and cryptocurrencies.

Data from Curvo shows this correlation has existed from 2011 to 2024, with Bitcoin serving as the benchmark. Historically, periods of growth in the S&P 500 have often been accompanied by strong advances in Bitcoin, while correction phases reflect similar declines across both markets.

This phenomenon is repeating with AI stocks and AI tokens. Just in the past month, Artemis recorded a 24.9% loss in AI tokens, with year-to-date losses reaching 74.6%. These figures reflect the overall weakening picture of the market and could worsen if AI-related stocks continue to plummet.

Source: Artemis The current market momentum offers little support for a recovery, with trading volume down 20%, now only $3.48 billion. The simultaneous decline in price and volume often signals waning investor confidence and increasingly pessimistic market sentiment.

If forecasts of continued weak performance for AI stocks materialize, pressure on AI tokens could intensify, making recovery prospects even more uncertain.

Concerns for altcoins

The pressure on major AI tokens is a warning sign of widespread weakening across the entire altcoin market.

The situation becomes even more tense as the US economic outlook appears less favorable, because in such contexts, capital tends to flow out of risky assets, causing further turmoil in altcoin markets.

Currently, data shows altcoins have fallen 34%, dragging the total market capitalization from a peak of $1.77 trillion down to just $1.16 trillion.

If the downward trend continues, altcoins risk falling further, with deteriorating market sentiment potentially pushing the entire sector’s capitalization back to the $1 trillion mark — the lowest level recorded on April 22, 2025.