Bitwise CIO: Choose Your Own Adventure, All Paths Lead to Bitcoin

Author: Matt Hougan, Chief Investment Officer of Bitwise

Compiled by: Deep Tide TechFlow

Deep Tide Introduction: Is AI bringing super abundance or a bubble burst? Will the Federal Reserve raise or lower interest rates? The Chief Investment Officer of Bitwise dissects all macro paths using a "choose your own adventure" framework, concluding that for long-term Bitcoin investors, these big questions may not need answers at all.

Choose Your Own (Macro) Adventure

There are many different paths for the economy. They all lead to Bitcoin.

As a child, my favorite books were the "Choose Your Own Adventure" series. In these books, you might be walking down a path in a spooky forest when you suddenly encounter a dragon, and the book asks you: Do you want to a) attack the dragon (turn to page 5); b) try to befriend the dragon (turn to page 21); or c) run away (turn to page 63)? My favorite part was seeing the endings of each path. If you chose this one, everything was fine; if you chose that one, everyone died. But sometimes, the author would play tricks on you: they would give you a choice that was completely irrelevant. No matter whether you went left or right, you ended up in the same place, whether it was a dungeon or a treasure trove.

Why I Am Saying This

Recently, at various conferences, I have received many questions starting with "What if… Bitcoin will…":

What if the Federal Reserve raises interest rates and drags us into a recession?

What if the Federal Reserve keeps rates unchanged while inflation soars?

What if the AI bubble bursts and we fall into a recession?

What if AI brings super abundance and infinite wealth?

The range of outcomes to consider is paralyzing, absolutely the widest I have seen in my career. Turn on CNBC, and within an hour, you will hear one expert say AI will double GDP every year, while another says it will lead to human extinction. How do you plan for such a situation? The answer is to do what I did as a child: walk down each path and see where it leads. Let’s think about a few paths AI might take and Bitcoin's possible responses.

Option One: AI Brings Super Abundance (Turn to Page 12)

In this world, productivity explodes, and GDP soars. Anything that primarily relies on intellect, such as software, legal work, design, pharmaceuticals, or diagnostics, becomes very cheap. Every day feels like listening to Louis Armstrong's "What a Wonderful World."

Abundance is a tailwind for scarcity, as value migrates to things that cannot be replicated: beachfront land, great artworks, gold, and of course, Bitcoin. So in this "adventure," Bitcoin wins.

Option Two: AI Bubble Bursts (Turn to Page 20)

In this reality, as the global economy falls into recession, high-growth assets are sold off. Data center borrowers default, and insurance companies holding billions in AI-related bonds face challenges. This is a replay of 2008.

Initially, Bitcoin would drop along with other risk assets. But we all know what happens next: interest rate cuts, balance sheet expansion, and bailouts. Because AI infrastructure is the largest investment in U.S. history, the ensuing bailouts will also be the largest. And due to the geopolitical importance of AI, I believe the probability of a bailout is nearly 100%.

What I think will happen next is: a surge in money supply, and Bitcoin rebounds significantly. This is precisely the environment Bitcoin was created for.

Option Three: We Scrape By with 3% Growth and 4% Interest Rates (Turn to Page 41)

Nothing dramatic happens. AI brings some economic growth, but it is not disruptive. AI-related debts are repaid, and we approach a soft landing. In this world, Bitcoin continues to do what it has always done: more ETF inflows, more adoption from financial advisors, and more allocation from corporate and sovereign balance sheets. Government debt continues to accumulate, and the demand for value storage assets continues to rise. Bitcoin wins by "showing up."

All Roads (Still) Lead to Bitcoin

The value of this thought exercise lies in the fact that for Bitcoin investors, the outcomes of AI do not matter in the long term. In my view, every path ultimately ends with Bitcoin rising.

Frankly, the same goes for interest rates. If the Federal Reserve aggressively raises rates and pushes us into a recession, the government is likely to intervene, and Bitcoin is likely to rebound. If they do not raise rates and inflation remains high, watch how investors turn to Bitcoin as a store of value. If the Federal Reserve achieves a soft landing, flipping back to page 41, I see us steadily rising.

In almost every scenario I can imagine, one of the following three things will happen: 1) The pace of money and credit creation outstrips real economic growth, benefiting fixed-supply assets; 2) The economy becomes so efficient that scarce things enjoy a premium; or 3) Nothing major happens, and Bitcoin continues to gain market share.

The paths differ, but the page you turn to is the same. That’s the trick in those old books: the choice is irrelevant.

I am not saying Bitcoin will rise in a straight line. In several of these worlds, Bitcoin will have a tough time before the story unfolds. When the panic of the COVID-19 pandemic hit in early 2020, Bitcoin dropped 50% in a matter of days, then rebounded and rose about 20 times.

Of course, the core Bitcoin narrative could also burst for reasons unrelated to macro factors. Quantum computing could threaten old wallets, governments could coordinate a global crackdown, or Western governments could embrace tightening policies and restore sound management of their currencies. I think these are unlikely, but not impossible.

But for long-term investors, the impact of macro big questions is smaller than most people imagine. This is because, among all the different paths the economy can take, almost every one still leads to Bitcoin.

Risks and Important Information

This does not constitute investment advice; risk of loss: Before making any investment decisions, each investor must conduct their own independent review and investigation, including the pros and cons and risks involved in the investment, and must make investment decisions based on that review and investigation, including determining whether the investment is suitable for that investor. Crypto assets are digital representations of value that can serve as a medium of exchange, unit of account, or store of value, but do not have legal tender status. Crypto assets can sometimes be exchanged for U.S. dollars or other currencies globally, but are currently not backed or endorsed by any government or central bank. Their value is entirely determined by market supply and demand forces and is more volatile than traditional currencies, stocks, or bonds. Trading crypto assets involves significant risks, including extreme market price volatility or flash crashes, market manipulation, cybersecurity risks, and the risk of losing principal or all of your investment. Additionally, the regulatory controls or customer protection measures applicable to crypto asset markets and exchanges differ from those for stocks, options, futures, or forex investments. Trading crypto assets requires an understanding of the crypto asset market. When attempting to profit from trading crypto assets, you must compete with traders around the world. Before engaging in large-scale crypto asset trading, you should have appropriate knowledge and experience. Trading crypto assets can lead to substantial and immediate financial losses. Under certain market conditions, you may find it difficult or impossible to quickly liquidate at a reasonable price. The information in this article is not intended to provide, and should not be relied upon as, accounting, legal, or tax advice, or investment advice. You should consult your accounting, legal, tax, or other advisors regarding the matters discussed in this article.