Bitcoin could emerge stronger regardless of how the economy develops, as artificial intelligence, monetary policy and institutional adoption create different paths for long term growth, according to Bitwise Chief Investment Officer Matt Hougan.
In his latest weekly CIO memo, published Wednesday, Hougan argued that Bitcoin could benefit from an AI driven productivity boom, a recession triggered by an AI market collapse or a period of moderate economic growth.
“As I see it, every path ultimately ends with bitcoin higher,” Hougan wrote.
The memo comes as Bitcoin faced renewed selling pressure Wednesday following a hotter than expected US inflation report.
September’s Consumer Price Index rose 3.7% annually, above expectations of 3.6%, while core inflation increased 0.3% monthly, exceeding forecasts of 0.2%.
The figures pushed expectations for another Federal Reserve rate hike higher. Traders raised the probability of a 25 basis point increase at the October 28 meeting to 41.5%, up from approximately 22% on Tuesday.
Bitcoin dropped below $82,000 following the release, touching $81,500. The asset has traded largely between $81,500 and $82,000 throughout Wednesday, changing hands near $81,700 at press time.
Why an AI boom or recession could benefit Bitcoin
Hougan outlined three economic scenarios that could support Bitcoin over the long term.
First, an AI driven productivity boom could accelerate economic growth and reduce the cost of goods and services. That would increase the relative value of scarce assets, including gold, real estate and Bitcoin.
Second, an AI bubble collapse could trigger a recession, initially dragging Bitcoin lower alongside other risk assets.
However, Hougan expects governments and central banks to respond with rate cuts, monetary expansion and financial support measures, potentially fueling a Bitcoin recovery.
In the third scenario, moderate economic growth would allow Bitcoin to benefit from continued ETF inflows, institutional adoption and corporate and sovereign treasury allocations.
Rising government debt could further support demand for stores of value.
Fed policy offers another path for Bitcoin
Hougan argued that different Federal Reserve decisions could also ultimately benefit Bitcoin.
Aggressive rate hikes could trigger a recession and eventually force policymakers to provide monetary stimulus. Alternatively, leaving rates unchanged amid persistent inflation could increase demand for Bitcoin as a store of value.
A successful economic soft landing could support continued institutional adoption and investment flows.
Still, Hougan cautioned that Bitcoin would not necessarily rise immediately under every scenario.
He pointed to Bitcoin’s roughly 50% decline during the March 2020 pandemic panic before its subsequent recovery.
He also acknowledged risks to the broader investment thesis, including quantum computing threats, coordinated government restrictions and a shift toward stricter fiscal policies.
Nevertheless, Hougan maintained that investors may be placing too much emphasis on short term economic outcomes.
“For long-term investors, the big macro questions matter less than most people think,” he concluded.
Disclosure: This article was edited by Estefano Gomez. For more information on how we create and review content, see our Editorial Policy.