Bitwise's Matt Hougan says Bitcoin rises whether AI booms or busts

Bitwise executive Matt Hougan argues that every path the AI economy could take ends with Bitcoin higher. Hougan outlined scenarios involving AI-driven abundance, an AI collapse and modest economic gains in a Wednesday note. Hougan wrote that recent conference questions ranged from whether Federal Reserve rate decisions trigger a recession to whether AI brings infinite abundance or human extinction. Hougan used a branching-scenario approach borrowed from childhood "Choose Your Own Adventure" books to examine the possible outcomes.

The abundance scenario involves soaring productivity and GDP, with software, legal services and diagnostics becoming extremely cheap. Hougan argues that abundance benefits scarce assets because investors direct money toward things that cannot be reproduced. Hougan identifies waterfront land, fine art, gold and Bitcoin as examples.

The AI-collapse scenario involves sharp declines in high-growth assets, defaults by data-center borrowers and trouble for insurers holding billions in AI-linked bonds. Hougan compares that setup to 2008. Bitcoin initially falls alongside other risk assets in this scenario, but Hougan expects central banks to respond with rate cuts and balance-sheet expansion. Hougan puts the odds of a government bailout at "nearly 100%" because AI infrastructure has become central to the economy. Hougan says the bailout would flood the financial system with money and send Bitcoin sharply higher.

The modest-growth scenario involves 3% growth, 4% interest rates and a soft landing, with AI adding economic value without transforming the economy. Hougan says Bitcoin would continue attracting exchange-traded fund inflows, financial-adviser adoption, and corporate and sovereign treasury allocations. Hougan says government debt would keep climbing alongside growing demand for store-of-value assets.

Hougan's argument extends beyond AI to interest-rate outcomes. Aggressive Federal Reserve rate increases into a recession would likely trigger government intervention favorable to Bitcoin. High inflation without rate increases would push investors toward Bitcoin as a store of value. A soft landing would allow steady gains to continue. In Hougan's view, nearly every macroeconomic scenario produces faster growth in money and credit than in the real economy, a premium for scarce assets or continued market-share gains for Bitcoin.

Hougan cautions that Bitcoin will not rise in a straight line. Hougan cites Bitcoin's 50% crash during the 2020 COVID panic and subsequent roughly twentyfold rally as an example of volatility before recovery. Hougan also identifies quantum computing threats to old wallets and a possible coordinated global government crackdown as risks outside the macroeconomic outlook. Hougan considers both risks unlikely.