A BIS model of rising output and a thinner consumer market sits outside Bitwise's three Bitcoin paths

Bitwise CIO Matt Hougan argued in an Oct. 14 memo that nearly every macroeconomic path ends with Bitcoin higher, including an extraordinary AI productivity boom.

Hougan's memo lays out three outcomes: AI abundance that makes intelligence-based services cheaper and shifts value toward scarce assets; a bursting AI investment bubble that triggers recession, policy intervention and monetary expansion; and modest productivity gains that support gradual adoption, continued ETF demand and higher institutional allocations.

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

Under a baseline scenario of 3% GDP growth and 4% interest rates, Hougan argues Bitcoin's momentum is self-sustaining, with continued ETF buying, rising corporate treasury holdings and growing sovereign debts generating structural demand.

September CPI rose 3.7% from a year earlier and core inflation gained 0.3% on the month, both above expectations.

Traders raised the likelihood of a 0.25-percentage-point Fed rate increase on October 28 to 41.5%, up from about 22% the previous day.

The Bank for International Settlements published a working paper two days before Hougan's memo that models a fourth path, in which AI automates work and lifts output while the consumer demand that funds further innovation thins until growth fades.

BIS Working Paper No. 1381, 'Transformative AI and demand bottlenecks', is by Phurichai Rungcharoenkitkul.

In the paper's calibrated scenario, consumption's share of output falls from about 69% to 62.1% when further innovation stops being profitable.

Long-run sustainable growth drops from the 2% pre-AI baseline to about 1.6% in the calibrated scenario.

Actual output growth peaks just under 2.4% about 15 years into the AI era and stays above 2% for about 35 years, as businesses keep accumulating machinery and computing capacity while the innovation engine weakens.

CryptoSlate's worked example: if output rises 10% and consumption's share falls from 69% to 62.1%, the consumer market index moves from 69 to 68.31, a 1% contraction inside an economy that produced 10% more.

The model estimates labor's share of tasks falls from 60% to between 15% and 50% over three decades, and in the demand-bottleneck calibration real wages settle about 15% below the path they would have followed absent that level of automation.

The wage result assumes fixed labor supply, a static set of tasks for workers, and wages tied to marginal productivity, so different assumptions could move it materially.

The paper's pre-AI natural rate of interest is 1.65%, its median 20 years out is 1.2%, and a 90% model band spans -0.6% to 4.4%.

The Fed's Oct. 14 Beige Book reported businesses in 5 of 12 districts reducing headcount through attrition, delaying hiring or expecting fewer jobs once AI-related productivity gains arrived.

Beige Book employment was broadly stable, with three districts reporting modest increases, five slight increases, and four flat readings.

Beige Book consumer spending was broadly flat, and more than half of districts said higher-income households drove it.

The Beige Book is a qualitative survey that gathers observations through Oct. 5, describes uneven gains and unequal purchasing power, and leaves the BIS feedback loop unconfirmed.

The odds of an Oct. 28 hike rose about 19.5 percentage points in a day.

With output at 110 and consumption's share at 0.621, the consumer market index is 68.31, which is 1.0% below the starting 69.

Consumption's share falls by exactly one tenth (62.1 / 69 = 0.9) while output rises by one tenth, so the product is 0.99 of the starting level.

The 90% model band for the natural rate is 5.0 percentage points wide.

The median natural rate 20 years out is 0.45 percentage points below the pre-AI reference.

The three employment categories cover all 12 districts, so none reported a decline.

Falling rates from a healthy productivity transition can support asset demand, including Bitcoin, while falling rates from weak consumption, financial stress and contracting credit can coincide with deleveraging.

Bitcoin's upside hinges on whether AI wealth reaches investors faster than wages and liquidity erode.