Bitwise Chief Investment Officer Matt Hougan said bitcoin could ultimately benefit whether AI drives an economic boom, its investment bubble bursts, or growth remains modest. In a Wednesday note to clients, Hougan argued that every path ultimately leads to a higher bitcoin price over the long term.
Hougan said an AI crash could cause data-center borrowers to default. Hougan said insurance companies holding billions in AI-linked bonds would come under pressure in that scenario. Hougan said the economy would enter a recession reminiscent of 2008. Hougan put the probability of a subsequent government bailout at "nearly 100%" because of AI's geopolitical importance. Hougan argued that the AI buildout is America's biggest infrastructure investment and that the resulting bailout would therefore also be the biggest. Hougan expects bitcoin to recover after an initial selloff and rise sharply as the money supply surges.
Hougan expects a similar outcome if the Federal Reserve raises interest rates enough to cause a recession. Hougan expects more investors to use bitcoin as a store of value if the Federal Reserve does not raise rates and inflation rises instead.
Hougan described an AI-driven boom as a world of "superabundance," with soaring productivity and GDP. Hougan said software, legal work, design, pharmaceuticals and diagnostics would become much cheaper. However, Hougan said waterfront land, great art, gold and bitcoin would remain scarce. Hougan expects those scarce assets to increase in value.
Hougan also outlined a scenario with 3% economic growth. Hougan assumed 4% interest rates in that scenario. Hougan said AI-linked debt would be serviced and the economy would experience something approaching a soft landing. Hougan said bitcoin's existing sources of demand would remain in place, including more ETF inflows, greater adoption by advisors, and more corporate and sovereign balance sheet allocations.
In June, Hougan called crypto a "contrarian bet" while investors favored AI stocks. Bitwise Senior Investment Strategist Juan Leon said in July that bitcoin's price floor was rising despite the AI boom and regulatory delays.
However, Hougan warned that bitcoin would not necessarily rise steadily and that some scenarios involve a difficult period before a recovery. Hougan cited bitcoin's 50% decline in a matter of days during the COVID panic in early 2020. Hougan said quantum computing threats, a coordinated government crackdown or Western governments returning to fiscal austerity could undermine the thesis. Hougan described those risks as unlikely but not impossible.