Bitcoin’s Future in an AI World

The trajectory of Bitcoin in an age dominated by artificial intelligence might hinge more on central banks than on technicalities of the code itself.

Greg Cipolaro, who leads global research at NYDIG, recently suggested that AI will influence Bitcoin mainly through macroeconomic factors and shifts in the labor market. He emphasizes key elements like growth, employment, real interest rates, and liquidity. Essentially, Bitcoin operates in response to these broader forces.

It’s possible that job losses and wage reductions due to automation could diminish consumer demand. In severe scenarios, lowered incomes might add strain to debt management and impact asset values.

These worries don’t seem unfounded. Just recently, Jack Dorsey’s fintech venture Block announced plans to reduce its workforce by roughly 40%, reverting to its size before the pandemic. Dorsey noted how AI can facilitate workforce cuts. Citrini’s study posited that AI-induced fears have rattled markets this week.

In response to such outcomes, policymakers might choose to lower interest rates or introduce fiscal stimulus to stabilize the economy, potentially creating a liquidity surge that would support Bitcoin’s status as it tends to follow shifts in global money supply.

Conversely, a scenario where AI enhances productivity and economic growth without significant job losses might lead to increased real yields, prompting central banks to maintain tight monetary policy.

Historically, rising real interest rates have pressured Bitcoin, making it less appealing as a risk asset due to the increased opportunity cost associated with holding it.

Demand Concerns

The trepidation surrounding AI echoes previous tumultuous periods in history.

For instance, steam power replaced human labor in various sectors, electrification transformed industries, and the advent of computers and the Internet automated numerous office tasks, significantly reshaping retail, media, and finance.

With each shift, there were genuine fears about lasting job losses. In the early 20th century, factory mechanization disrupted skilled labor. The rise of personal computers in the late 20th century reduced the number of office workers like typists. Recently, e-commerce has drastically affected traditional retail.

Yet, it’s noteworthy that overall demand didn’t plummet. Productivity generally improved, and new sectors emerged to absorb those who were displaced, despite the transitions often being difficult. Today’s economy includes industries that were barely dreamt of during the Internet’s inception, think cloud computing.

Cipolaro suggested that AI might follow a similar trajectory. As a versatile technology, companies will likely need to rethink their workflows and invest in complementary resources. Over time, this can lead to an expansion in production capacity, rather than a contraction.

“This doesn’t imply that the disruption is without pain, but rather that historically, the response to new technology has been to integrate rather than to render things obsolete,” Cipolaro noted. “It’s probable that society’s reaction to AI will mirror this pattern.”

This distinction holds significant weight for Bitcoin. If AI drives long-term growth, the structural context may differ from the short-term disruptions that commonly prompt liquidity boosts.

Additionally, hiring might see an uptick as agents, or software making automated payments to other software without human oversight, become more prevalent. Early visions for Bitcoin included machine-to-machine transactions, and AI might be the key to realizing those possibilities.

However, there still isn’t much incentive for widespread implementation. Cipolaro highlighted that credit cards come with various perks and immediate credit options—features that stablecoins haven’t yet matched.

In the end, the rise of AI introduces significant challenges. What will ultimately matter is how humans choose to respond to these disruptions. Whether AI triggers a deflationary crisis that leads to increased money printing or it ignites a productivity surge that elevates real yields, Bitcoin’s fate will likely reflect those outcomes.