Bitwise CIO says Bitcoin wins in all 3 economic scenarios as macro risks mount

Bitwise Chief Investment Officer Matt Hougan says Bitcoin may be in good shape whether the economy changes or not. His reasoning is based on the long-term growth prospects for Bitcoin, which he claims remain favorable regardless of economic developments, driven by AI integration, changes in monetary policy, and increased institutional investment.

The asset will be looking at profits regardless of whether AI boosts productivity, an AI market crash pushes the economy into recession, or economic growth continues at a moderate pace, the executive wrote in his weekly CIO memo.

“There are a lot of different paths for the economy. All of them lead to Bitcoin,” he said.

Hougan says Bitcoin will still benefit from an AI superabundance market

In his memo, Hougan admitted that the number of possible economic directions is too many to even consider. His solution to the uncertainty is similar to what he did as a child: to explore everything and see exactly where it leads.

For starters, in the case of a hyper-productive AI economy, he argued, BTC could still gain ground. He argued that as intelligence becomes more widely available and increasingly inexpensive, investors may place greater value on scarce assets such as gold and Bitcoin.

“So in this ‘adventure,’ Bitcoin wins,” he said.

Conversely, in a bearish outlook that envisions a potential crash in the AI market, Hougan likened it to the 2008 financial crisis, citing defaults by data centers and bond insurers. Even as Bitcoin might decline along with other risky investments at the start of the downturn, the executive believed that government intervention would increase the money supply, leading to a Bitcoin bull market.

“And because of the geopolitical importance of AI, the odds of a bailout strike me as nearly 100%. And here’s what I see happening next: Money supply surges and Bitcoin rallies hard. This is exactly the environment Bitcoin was built for,” he wrote.

On the other hand, under a baseline macroeconomic scenario of 3% GDP growth and 4% interest rates, Hougan argues that Bitcoin’s current momentum is entirely self-sustaining. He anticipates that even without a groundbreaking AI breakthrough, continued ETF buying, increased corporate treasury holdings, and an uninterrupted increase in sovereign debts will generate structural demand for BTC.

Institutional demand remains central to Hougan’s outlook

With US spot Bitcoin exchange-traded funds becoming a reality, institutional participation in the Bitcoin market is a key element. And these products provide the traditional investor with access to Bitcoin without the need to manage wallets or hold the asset directly.

Corporate treasury strategies and the possibility of sovereign adoption of cryptocurrency could also influence Bitcoin’s long-term course.

But demand will not always grow. ETF investors can withdraw funds at times of market stress, and companies can also reconsider their cryptocurrency holdings if prices fall or financing conditions deteriorate. Hougan’s argument is based on the assumption that long-term adoption will outweigh these potential setbacks.

He also argued that the cryptocurrency still has the potential to appreciate regardless of the Federal Reserve’s actions on interest rates. If the Federal Reserve hikes interest rates aggressively and the country enters a recession, government support can help push up the asset’s price. Should inflation remain high due to policymakers’ reluctance to raise rates, Bitcoin may be sought after by investors.

More recently, fresh inflation data increased concerns that the Federal Reserve may need to tighten monetary policy further. September’s CPI rose 3.7% compared with the same period last year, while core inflation recorded a monthly gain of 0.3%. Both readings exceeded expectations, prompting traders to raise the likelihood of a 0.25-percentage-point rate increase on October 28 to 41.5%, up from about 22% the previous day.

Overall, he believes every possible economic scenario points toward higher BTC prices over time.

Hougan says crypto showed signs of a bullish recovery

Recently, Hougan also showed that crypto was shaking off the winter chill. He pointed to Q3’s massive market recovery and surging network data as evidence that the market is entering a brand-new growth cycle.

For Q3, Bitwise’s large-cap crypto index posted a 46.4% gain, while $6 billion in net inflows into US spot Bitcoin ETFs reversed prior outflows, restoring positive year-to-date performance.

Crypto analysts are still split on whether the bear market is truly behind us. CryptoQuant declared a new Bitcoin bull run back in September based on their technical and onchain data, but Bitget’s Ryan Lee warns the market still needs more proof of a true cycle bottom. Meanwhile, Hougan thinks that booming ETF flows and active networks point to a recovery.