Jeremy Grantham predicts AI bubble burst, slams Bitcoin

Global financial markets are experiencing an unprecedented transformation, where technological euphoria is bringing back the specters of systemic crises of the past. In this period of extreme tension, the analysis of economic cycles by historical figures in traditional finance provides an essential reading framework for anticipating capital allocations. Jeremy Grantham, famous billionaire and co-founder of the institutional management company GMO, has just released an uncompromising diagnosis of the current state of technological valuations linked to AI and cryptos. In a long interview with Steven Bartlett for the YouTube series “The Diary of a CEO”Grantham delivered alarmist macroeconomic forecasts, specifying that his comments engaged his sole responsibility and not that of his management company, which manages $85 billion in assets.

A meteoric rise in AI

Jeremy Grantham places the current rise of AI, thanks to the influx of capital, on the same level as the great infrastructural revolutions of the last two centuries, while warning of the danger inherent in such enthusiasm.

His analysis shows that major technological upheavals always cause, in the short term, massive and value-destroying overinvestment. To defend this thesis of a generalized excess of speculation, the co-founder of GMO relies on several factual indicators:

• The historical example of Amazon which, during the technology bubble of 1999, saw its stock multiply six or seven times before collapsing by 92% during the stock market crash;
• Overvalued US equity markets which today trade at between 35 and 40 times earnings, a level well above the historical norms of previous cycles;
• The emblematic case of SpaceX's prospectus, which defines its potential addressable market as representing a quarter of global GDP and mentions asteroid mining.

Faced with these predictions relating to AI, the billionaire draws a direct parallel with one of the most famous bankruptcies in modern finance. He noted that “50 years from now, people will look back and tell stories about SpaceX and its brochure, like they tell stories about the South Sea Bubble”. Grantham states factually: “if you look at the data it might well fit the story where the peak is very close”.

This warning comes at a time when the presence of small investors on American stock markets has never been so strong since the beginning of the modern era, thus exposing an unprecedented share of public savings to a major risk of correction which Grantham places at 70% for technological securities linked to AI. His conclusion on this dynamic is beyond doubt: “this is, in my opinion, the biggest financial bubble in the history of the United States”.

The absolute condemnation of the long-term viability of bitcoin

Jeremy Grantham's skepticism with regard to market dynamics extends even more radically to cryptos, an area where he applies a purely utilitarian reading grid. The investor clarified his personal position by stating that he does not hold any crypto, has never held any, and has no plans to acquire any in the future. His criticism of bitcoin is based on the complete absence of traditional economic fundamentals and its lack of practical utility in the real economy.

Grantham rejected the idea that bitcoin could replace a traditional currency or safe haven asset. He states: “I think it’s useless gibberish.” It doesn't make anything easier, except for criminals who relocate money to avoid being seen. It's not a store of value since it bounces all over the place, it fell from $120,000 to $60,000 just because it felt like it. So it's not stable. It's volatile as hell”.

The GMO co-founder questions the protocol's effectiveness as an everyday trading instrument, not just its price volatility. He argues that difficulty of use and lack of structural integration prevent bitcoin from competing with fiat currencies: “It does not serve conveniently as a medium of exchange. You can't easily go to a store and use it. He knows how to do one thing very well. It's a wonderful way to speculate.”.

Asked directly about the long-term objective of this purely speculative asset, the analyst expressed no reservations about its possible disappearance, however linking its fate to a more global law of financial entropy: “well, in the distant future, yes, it will definitely go to zero, but it may take a long time. And you know, in the distant future, everything goes back to zero”.

A capital preservation strategy in the face of the great Wall Street squeeze

To confront this collapse which he considers inevitable, Jeremy Grantham recommends a radical defensive reallocation of portfolios, completely independent of traditional American indices. His main recommendation for the average investor is a simple and immediately applicable guideline: “don’t hold US stocks. It’s a simple strategy you can act on”.

Instead, it proposes to allocate 60% of its capital in an index of international stocks outside the United States, evoking Europe, Japan, Canada, Australia and even emerging markets. He believes the rest of the portfolio should be tilted toward proven safe havens, such as short-term government bonds, real estate and precious metals such as gold and silver.

These antagonistic statements, to say the least, require a nuanced analysis of the forces present today between traditional finance and the crypto ecosystem. Grantham relies on decades of proven economic cycles where excess liquidity always ends up being absorbed. However, his perception of bitcoin omits the concepts of programmatic scarcity and decentralization which underpin the value of the asset for its supporters.