China’s AI bubble has burst: the STAR50 index of Chinese AI and chip leaders has lost about 40% in under four months, erasing roughly $480 billion. Reuters’ analysis showed on Monday, October 26, how stretched valuations and Western equipment bans broke the rally. The selling didn’t stop there. On Tuesday, Cambricon, China’s answer to Nvidia, fell another 5.7%.
The damage has spread across Asia, and U.S. chip stocks are already 24% below their June high. So is America’s AI trade next, and what would that mean for Bitcoin and AI crypto tokens?
The AI bubble in China has officially bursted.
The burst wiped out $480 BILLION in value and has affected all of the Chinese market. pic.twitter.com/LV1lKcnRGD
— ToonHive (@ToonHive) October 27, 2026
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China AI Bubble Burst: What Happened?
A rally that ran far ahead of earnings. At its peak, the STAR50 traded near 250 times trailing earnings; even after the crash, it sits around 100 times, against roughly 30 for the Nasdaq 100.
The individual names tell the story. Robot maker Unitree, whose IPO retail buyers oversubscribed 8,000 times, has halved since its August debut. GPU makers MetaX and Moore Threads have each roughly halved since July. Optical suppliers Zhongji Innolight and Eoptolink are down about 60% from their summer highs as Washington moves to bar them from U.S. data centers. Cambricon is down 42.8% from its June 30 close and SMIC 49.3%.
There was no single trigger. Traders pointed to valuations, tax bills and the equipment bans, while state-backed investors sold into rallies as regulators cracked down on leverage and high-frequency trading. With AI stocks making up 42% of China’s market value and 57% of its turnover, by Goldman Sachs’ count, the slide pulled the CSI 300 about 20% below its June high.
Korea took the hit too. SK Hynix, the memory maker at the heart of the AI chip trade, is down 49.4% since June 30, and the KOSPI is down 33.5%.
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Is the US AI Bubble Next?
Partly, it is already here. The Philadelphia Semiconductor Index closed Monday 24.3% below its June 22 high, past the 20% line that marks a bear market. Nvidia is 9.7% off its October 6 high.
The broad market has held up far better. The Nasdaq Composite is only 5.2% below its record, and Nasdaq 100 futures were up 0.1% on Tuesday morning. The valuation gap is the main buffer: U.S. AI leaders trade at about a third of the STAR50’s multiple and, unlike most of China’s chip names, earn large profits.
Traders aren’t pricing a U.S. crash. A Polymarket contract on whether the AI bubble bursts gives 9.4% for 2026 and 22.5% by June 30, 2027. The next tests come fast: the Fed decides on Wednesday, and Anthropic’s IPO will soon ask investors for billions more for AI.
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What Does the AI Bubble Mean for Bitcoin and AI Crypto?
So far, very little. Since June 30, when Cambricon and SMIC peaked, Bitcoin has gained 35.7%, Bittensor’s TAO 21.9%, and Render 9.7%, while the Artificial Superintelligence Alliance’s FET is flat. Bitcoin’s 2026 low came on July 1, so the window flatters it, but the direction is clear.
Price change since June 30, 2026. Source: Yahoo Finance, Binance
Over the past 90 days, the daily moves of Bitcoin and TAO have shown almost no link to Cambricon’s, with correlations of −0.06 and −0.08. China’s domestic AI crash has stayed in China.
A U.S. sell-off would be different. Bitcoin’s daily moves have tracked the Nasdaq 100 more closely, with a correlation of 0.37, and AI tokens follow Bitcoin first: TAO’s correlation with Bitcoin is 0.71, against 0.36 with U.S. chip stocks. When the market turns, AI tokens fall harder.
Over the past 30 days, TAO lost 25%, FET 29%, and Virtuals Protocol 25%, while Bitcoin lost 6.4%.
Bitcoin Price Analysis: Can BTC Hold $79,221?
Bitcoin trades at $79,517, down 1.1% in 24 hours and below its 50-day EMA at $80,752. Saturday’s low of $79,221 is the support that buyers have defended twice, and Tuesday’s dip stopped at $79,421, just above it.
Resistance sits at $81,480, where last week’s rebounds stalled, then $82,850. Below $79,221, the next floor is the 200-day EMA at $76,379.
BTCUSDT Chart 1D TradingView
| Scenario | What it takes | Where BTC could go |
|---|---|---|
| Breakout | A daily close above $81,480 | $82,850, last week’s ceiling |
| Range | Holding between $79,221 and $81,480 | Back and forth around the 50-day EMA at $80,752 |
| Breakdown | A daily close below $79,221 | $76,379, the 200-day EMA |
China’s AI bubble burst without touching crypto. The one to watch is the U.S. version: if the Nasdaq follows its chip stocks lower, Bitcoin is likely to feel it, and AI tokens more.
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Daniel Frances is a technical writer and Web3 educator specializing in macroeconomics and DeFi mechanics. A crypto native since 2017, Daniel leverages his background in on-chain analytics to author evidence-based reports and deep-dive guides. He holds certifications from The Blockchain Council, and is dedicated to providing “information gain” that cuts through market hype to find real-world blockchain utility.
