When NVDA Falls, Markets Follow

Last Tuesday, Nvidia (NVDA) experienced the worst single-day selloffs in stock market history, with its stock dropping 9.5% and wiping out over $279 billion off its market cap. To put this into perspective, $279 billion is roughly equivalent to the market cap of Ethereum (ETH), more than 4.5 times the market cap of Solana (SOL), and exceeds the combined market cap of the next 10 largest altcoins after Ethereum, excluding stablecoins. This selloff in Nvidia triggered a global selloff in the tech sector, which spilled over into digital assets. Bitcoin and Ethereum are down approximately 0.40% and 1% week-to-date and roughly 3% and 5% off their weekly highs, while the S&P 500 and NASDAQ have declined about 1.5% for the week. 

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When Nvidia Falls, the Market Follows

The catalyst for Nvidia’s sharp decline was a report from Bloomberg stating that the U.S. Justice Department had issued a subpoena to Nvidia as part of an antitrust probe. Though Nvidia denied receiving the subpoena the following day, the damage was done, The NVDA selloff triggered a wider risk-off sentiment, causing the U.S. stock market to experience one of its worst selloffs in history, erasing over $1.05 trillion in market value. Nvidia’s significant weight in major indices—comprising 5.64% of the S&P 500 and holding the third-largest position in both the S&P 500 and NASDAQ Composite Index—amplified the fallout. Furthermore, the top five ETFs, with a combined $2 trillion in assets under management (AUM), hold more than $132 billion in Nvidia stock. This broad exposure to Nvidia across major ETFs magnifies its influence on the market. When Nvidia’s stock drops, these funds must rebalance, triggering a chain reaction of selling pressure across multiple assets and sharpening declines in the broader market. Nvidia’s role as a bellwether stock means that fluctuations in its price can set off widespread volatility across sectors, sparking selloffs beyond just the technology sector.

The technology sector makes up roughly 58% of the NASDAQ and over 30% of the S&P. When NVDA sells off, tech sells off - Nvidia has an outsized effect on the technology sector due to its leadership in critical areas like artificial intelligence and semiconductors. As a key player, any sharp decline in its stock price can signal weakness or uncertainty in these high-growth tech areas, leading investors to reassess their outlook on the broader tech market. This often triggers selloffs in other major tech stocks, further compounding losses and amplifying volatility within the sector. As a result, Nvidia’s downturn can disrupt the momentum of the entire technology space, impacting everything from investor confidence to innovation-driven companies.

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Why Digital Assets Are in the Crossfire

The ripple effect of Nvidia’s selloff isn’t limited to tech stocks. It also extends to riskier assets like Bitcoin and Ethereum, as many institutional investors with exposure to both Nvidia and digital assets reduce their overall risk during a selloff. Bitcoin and Ethereum, often viewed as higher-risk assets, are particularly vulnerable to these broader shifts in sentiment. Ethereum, in particular, is frequently compared to growth-tech stocks due to its role in driving blockchain innovation and decentralized applications (dApps). When Nvidia sells off, it can heighten selling pressure on Ethereum and other growth-like smaller market cap digital assets as part of a broader move away from riskier assets. This interconnectedness between the tech sector and digital asset markets means that a major selloff in tech can quickly spill over into the digital asset space, further intensifying declines.