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 the "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 spooky forest path when suddenly you encounter a dragon, and the book asks you: Do you want a) to 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 that you could see the endings of each path. If you chose this one, everything turned out fine; if you chose that one, everyone died. But sometimes the author would trick 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 Say 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 scenarios? The answer is to do what I did as a child: walk each path and see where it leads. Let’s think about a few paths AI might take and how Bitcoin might respond.

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 incredibly 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. It’s 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 expansions, and bailouts. Because AI infrastructure is the largest investment in U.S. history, the ensuing bailouts will also be the largest. And due to AI's geopolitical importance, I believe the probability of bailouts is nearly 100%.

What I think will happen next is a surge in the money supply and a significant rebound in Bitcoin. This is precisely the environment Bitcoin was created for.

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

Nothing dramatic happens. AI brings some economic growth, but it’s 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 advisors, and more allocations from corporate and sovereign balance sheets. Government debt continues to accumulate, and demand for value-storing assets rises. Bitcoin wins by "showing up."

All Roads (Still) Lead to Bitcoin

The value of this thought exercise is that for Bitcoin investors, the outcomes of AI do not matter in the long run. 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 recession, the government is likely to intervene, and Bitcoin will likely rebound. If they don’t 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 may differ, but the page you turn to is the same. That’s the trick in those old books: the choice is irrelevant.

I’m 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 COVID-19 hit in early 2020, Bitcoin dropped 50% in a matter of days, only to rebound and rise about 20 times.

Of course, the core Bitcoin narrative could also break for reasons unrelated to the macro environment. 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 think. This is because, among all the different paths the economy can take, almost every one still leads to Bitcoin.

Risks and Important Information

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