Bitwise says bitcoin could gain across AI boom, bust or soft-landing scenarios

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Bitwise: bitcoin & AI scenarios

Highlights

Bitwise CIO Matt Hougan says bitcoin could rally after initial declines in an AI-driven bust as rate cuts and monetary expansion follow a likely government bailout.
In an AI productivity boom or 'superabundance' scenario, Hougan argues scarce assets like bitcoin retain pricing power and could rise amid cheaper services and higher GDP.
Hougan states that even in a soft-landing scenario with 3% growth and 4% interest rates, bitcoin benefits from ETF inflows, broader advisor adoption, and institutional allocation.

AI scenarios and bitcoin outlook

As reported by The Block, Bitwise Chief Investment Officer Matt Hougan says bitcoin could ultimately benefit whether AI drives an economic boom, a burst investment bubble or only modest growth. In a Wednesday note to clients, he lays out an AI crash scenario in which data-center borrowers default, insurers holding billions of dollars in AI-linked bonds come under pressure and the economy enters a recession reminiscent of 2008.

In that outcome, Hougan says the odds of a government bailout are "nearly 100%" because of AI's geopolitical importance. He expects bitcoin to fall initially in a broad risk selloff, then recover and "rally hard" as rate cuts and monetary expansion lift the money supply.

Hougan says a similar pattern could emerge if the Federal Reserve raises rates enough to trigger a recession. If the central bank does not tighten and inflation rises instead, he expects more investors to turn to bitcoin as a store of value.

Institutional demand and longer-term risks

Hougan also describes a "superabundance" scenario in which AI sharply boosts productivity and GDP, making software, legal work, design, pharmaceuticals and diagnostics much cheaper. In that setting, he argues scarce assets such as waterfront land, great art, gold and bitcoin still retain pricing power and could rise in value.

He outlines a third path in which the economy muddles along with 3% growth and 4% interest rates, AI-linked debt continues to be serviced and the economy achieves something close to a soft landing. Under that scenario, he says bitcoin still benefits from existing demand drivers including ETF inflows, wider advisor adoption and more allocations from corporate and sovereign balance sheets.

Hougan says bitcoin does not necessarily rise in a straight line, pointing to its 50% drop within days during the COVID panic in early 2020 as a reminder of potential volatility. He adds that quantum computing threats, a coordinated government crackdown or a return to fiscal austerity in Western governments could weaken his thesis, though he describes those outcomes as unlikely.

In our earlier report on the AI-linked tech selloff, we covered how hotter-than-expected inflation data reignited fears of further Federal Reserve rate hikes and pushed Nasdaq futures lower. We noted that investors were reassessing the rising cost of financing AI infrastructure, with pressure on heavily indebted players and their bonds adding to the broader risk-off mood in tech.

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