There are many different paths for economic development, but all paths will eventually point to Bitcoin.

Written by: Matt Hougan, Chief Investment Officer of Bitwise

Compiled by: Chopper, Foresight News

As a child, my favorite set of reading materials was a series called "Choose Your Own Adventure." The plot of the book went something like this: you walk along a path in a spooky forest and suddenly encounter a dragon. At this point, the book presents a choice: do you plan to: a) attack the dragon (turn to page 5); b) try to befriend the dragon (turn to page 21); or c) turn and run away (turn to page 63)?

What I loved most was being able to see the outcomes associated with each choice. Choose this option, and everything goes smoothly; choose another, and everyone perishes.

However, the author occasionally set traps: some choices seemed different but were actually insignificant. Whether you went left or right, the destination you ultimately reached was the same, perhaps a dungeon or a hall filled with treasures.

Why I Tell This Story

Recently, at various industry summits, I am often asked questions like: if..., what would happen to Bitcoin?

• If the Federal Reserve raises interest rates and drags the economy into recession, what would happen to Bitcoin?
• If the Federal Reserve keeps interest rates unchanged and inflation surges again, what would happen to Bitcoin?
• If the AI bubble bursts and the economy falls into recession, what would happen to Bitcoin?
• If AI brings about an abundance of material wealth and creates endless riches, what would happen to Bitcoin?

The scenarios to consider are complex, so much so that it can be overwhelming; this is also the phase with the most variables I have seen in my career. Open CNBC, and within an hour, you’ll hear one expert say AI could double GDP every year while another asserts that AI will bring about human extinction.

With so many possibilities, how should one formulate an investment plan?

The answer is to emulate the way I read that book as a child: traverse every path and clearly see the ultimate endpoint.

Let’s explore a few possibilities regarding the development of AI and the likely trends for Bitcoin.

Scenario One: AI Brings Great Abundance (turn to page 12). In this world, productivity surges, and GDP skyrockets. In fields primarily involving intellectual labor, such as software, law, design, pharmaceuticals, and diagnostics, costs significantly decrease. Every day feels like the song by Louis Armstrong, "What a Wonderful World."

With material abundance, scarce assets benefit. Value flows towards those assets that cannot be infinitely replicated: waterfront land, top-tier artworks, gold, and of course, Bitcoin. In this "adventure story," Bitcoin will see a rise.

Scenario Two: The AI Bubble Bursts (turn to page 20). In this scenario, high-growth assets face sell-offs, and the global economy falls into recession. Borrowers in data centers default, insurers holding billions in AI-related bonds struggle, reminiscent of the 2008 financial crisis.

Initially, Bitcoin would fall in tandem with other risk assets. But the follow-up script is familiar: rate cuts, balance sheet expansions, and government rescue efforts.

AI infrastructure investments represent the largest infrastructure investment in U.S. history; once the crisis erupts, the corresponding rescue scale will also be unprecedented. Additionally, given AI’s significant geopolitical implications, in my view, the probability of government intervention is almost 100%.

What will follow is a surge in money supply, leading to a sharp rebound for Bitcoin. This is exactly the macro environment Bitcoin was created to address.

Scenario Three: The Economy Moves Moderately Forward, 3% Growth, 4% Interest Rates (turn to page 41). No major events occur. AI slightly boosts economic growth but does not lead to disruptive change. AI-related debts are paid normally, and the economy approaches a soft landing.

In this environment, Bitcoin continues its usual trajectory: ETFs experience ongoing inflows, more financial advisors allocate Bitcoin, and businesses and sovereign balance sheets consistently increase their holdings. Government debt continues to accumulate, and people’s demand for value storage assets increases. Bitcoin quietly waits, ultimately emerging as the victor.

All Roads Still Lead to Bitcoin

The core meaning of this exploration lies in the fact that, for long-term Bitcoin investors, the ultimate direction of AI is not important. In my view, regardless of which macro path is taken, Bitcoin's price will ultimately rise.

To be frank, the interest rate environment follows the same logic. If the Federal Reserve aggressively raises rates and triggers a recession, the government will likely implement intervention policies, leading Bitcoin to rise; if rates are unchanged and inflation continues to climb, investors will turn to Bitcoin as a value storage vessel; if the Federal Reserve successfully achieves a soft landing, as in scenario three, Bitcoin would likewise steadily advance.

In almost all scenarios I can envision, one of the following three outcomes will occur:

• The speed of monetary and credit expansion exceeds the growth of the real economy, favoring assets with a fixed total supply;
• Productivity significantly improves, and scarce assets receive valuation premiums;
• The macro environment remains stable, and Bitcoin continues to capture asset allocation shares.

The paths may differ, but the final destinations are consistent. Just like the little traps in the old books, the choice itself is irrelevant to the final outcome.

Of course, this does not mean that Bitcoin's price will rise straight up. In many scenarios, the market will experience a tough period before reaching a conclusion. During the initial panic of COVID in early 2020, Bitcoin plummeted by 50% in a few days, then rebounded, increasing nearly 20 times.

Meanwhile, the core logic of Bitcoin may also be disrupted by factors unrelated to the macro environment. For example, quantum computing threatening old wallet private keys; governments worldwide coordinating to implement global bans; Western countries pursuing contractionary policies and returning to sound monetary management. I think these probabilities are low, but not impossible.

However, for long-term investors, major macro issues are not as crucial as many might think. Because, regardless of which path the economy takes, almost all paths ultimately lead to Bitcoin.