Bitcoin Rises 9% in July—Could Crypto Be Spearheading the Post-AI Market Recovery?

Bitcoin Gains 9% in July as Crypto Shows Resilience Amid AI-Driven Market Selloff

The Federal Reserve left interest rates unchanged this week, but the bigger story for investors was the continued weakness in AI-related equities. While major technology stocks and semiconductor names extended their declines, Bitcoin quietly advanced around 9% during July, raising questions about whether cryptocurrencies could lead the next market recovery.

Key Takeaways

• Bitcoin has remained resilient, holding near $64,000 through the Fed meeting and posting a 9% gain for the month.
• AI-focused equities are undergoing a significant deleveraging phase, with the Magnificent Seven ETF (MAGS) recording its steepest one-day decline since April 2025.
• South Korea’s KOSPI index plunged roughly 16% over two sessions, triggering consecutive circuit breakers for the first time in the exchange’s history.
• Investors are becoming increasingly skeptical of massive AI-related spending without clear evidence of profitable returns.
• Regulatory progress in the U.S. crypto market, including support for the CLARITY Act, is providing an additional tailwind for digital assets.

Fed Decision Highlights Pressure on AI Stocks

Although the Federal Open Market Committee opted to keep rates unchanged, markets reacted negatively to the broader policy outlook. Expectations for another rate increase strengthened, with CME FedWatch indicating a 65.1% probability of a hike at the September meeting.

The hawkish backdrop weighed heavily on AI-related stocks. Nvidia lost more than 10% during the week, while investors increasingly questioned whether the enormous capital expenditures being made across the AI ecosystem would translate into sustainable earnings growth.

Earnings Reveal a Shift in Investor Priorities

The recent earnings season highlighted a clear distinction between companies demonstrating tangible AI-driven revenue growth and those merely increasing investment.

The Magnificent Seven ETF fell 4.7% following earnings reports from Alphabet and Tesla, marking its worst session since April 2025. Year-to-date, the ETF remains in negative territory despite strong gains across the broader S&P 500.

Among the major technology companies:

• Alphabet reported second-quarter capital expenditures of $44.9 billion and raised its full-year spending outlook to $195–205 billion. Investors responded negatively as heavy investment pushed free cash flow into negative territory, sending shares down 7%.
• Tesla missed earnings expectations and generated negative free cash flow of $1.1 billion. The stock declined roughly 20% during the week as investors grew less willing to pay for long-term AI and robotics ambitions without near-term profitability.
• Meta delivered strong revenue growth but reported lower net income and shrinking free cash flow. Shares fell after management increased spending guidance despite declining profitability.
• Microsoft stood out as the exception. Revenue exceeded expectations, Azure growth accelerated to 43%, and investors rewarded the company for demonstrating measurable AI monetization. Shares rose sharply after earnings.

The message from the market was straightforward: spending alone is no longer enough. Investors now want proof that AI investments can generate meaningful returns.

South Korea Signals Cracks in AI Valuations

The correction has not been limited to U.S. markets.

South Korea’s KOSPI index suffered its worst two-day decline on record, falling approximately 16% and triggering back-to-back trading halts. The selloff was driven largely by semiconductor weakness.

SK Hynix, despite reporting record operating profit and nearly sixfold earnings growth, still disappointed investors by narrowly missing analyst forecasts. The stock plunged almost 19% intraday.

The reaction underscored growing concerns that AI-related valuations may have become detached from realistic earnings expectations. Even exceptional profit growth is no longer guaranteeing positive market reactions.

Why Crypto May Recover Faster

In contrast to equities, Bitcoin has shown relative stability throughout the recent market turbulence.

While AI stocks continue to unwind, Bitcoin remains about 9% higher for July and has largely held key support levels. One explanation is that cryptocurrencies experienced their correction earlier. Bitcoin had already fallen more than 20% in June and remains roughly one-third below its recent highs.

Leverage dynamics also differ significantly.

AI-related equities benefited from a year of aggressive positioning through leveraged ETFs, margin borrowing, and expanding valuations. As sentiment turns, those positions are being unwound rapidly, amplifying downside volatility.

Crypto markets, by comparison, routinely flush excess leverage through liquidations. Significant ETF outflows and price declines during May and June already removed much of the speculative excess from the market. As a result, positioning appears cleaner and less vulnerable to forced selling.

Regulatory Momentum Supports the Crypto Narrative

Fundamentals are also improving.

On July 28, SEC Chair Paul Atkins expressed support for congressional efforts to advance the CLARITY Act and indicated the agency’s willingness to provide technical assistance. If enacted, the legislation would establish a clearer regulatory framework for digital assets in the United States.

This combination of reduced leverage, improving regulation, and an earlier correction strengthens the argument that crypto may be better positioned than AI equities for the next phase of recovery.

Looking Ahead

Several economic releases could shape market sentiment in the coming week:

• August 3: U.S. ISM Manufacturing PMI
• August 5: U.S. ISM Services PMI
• August 7: U.S. Nonfarm Payrolls Report
• Ongoing developments in the Middle East and their impact on energy markets

The labor market remains a critical variable. A second consecutive weak payroll report could reduce expectations for further rate hikes, while stronger employment data would reinforce the Fed’s hawkish stance.

Oil prices remain the most significant macro risk. Elevated energy costs continue to threaten inflation progress, and a combination of rising oil prices and stronger-than-expected employment data would likely create a challenging environment for risk assets across both equities and crypto markets.