8th July 2023 > > AI & BTC.

tl;dr

AI could potentially turbocharge the price of BTC.

Market Snap

Market Wrap

US 2s/10s remains highly inverted at 90bps. This is a classic indicator of a forthcoming recession suggesting that central banks’ continuing rate rises are fighting last year’s battles. Rishi Sunak, Prime Minister of the UK, claims that his attempts to halve inflation are hampered by fixed rate mortgages, which tells us two things. Firstly, central bank independence is a mirage, and it would be better for everyone if politicians of all stripes stopped playing fantasy games and started showing some honesty. Secondly, if the impact of current rate rises has been pushed into the future, it would be madness to continue down a ruinous path of rising interest rates. Andrew Bailey, Governor of the Bank of England, has lost all credibility.

The probability that quantitative easing returns in 2024 grows by the day, which is beneficial to anyone holding hard assets, but is excessively detrimental to the poorest sections of our society.

Curious Cryptos’ Commentary – Long-term holders

That’s a lot of diamond hands.

Curious Cryptos’ Commentary – AI & BTC

Arthur Hayes, co-founder, and ex-CEO of centralised cryptocurrency exchange BitMEX, is clearly an avid reader of the CCC. In response to yesterday’s introductory piece about new tools designed to allow AI to buy, hold, and transact BTC for its own purposes, Arthur penned a lengthier, more detailed essay summarising his thoughts:

https://cryptohayes.substack.com/p/massa

I heartily recommend you spend 10 minutes reading this essay, but I suspect many of you won’t, so here is my very quick summary.

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Arthur is very keen on AI, and is very keen on crypto, so this essay explores the interplay between the two.

He argues that “AIs gotta eat” by which he means that autonomous AI needs three critical resources – data, computer infrastructure (chip upgrades), and power in the form of electricity. AI will need to be paid for its work so that it can afford to eat, in a similar fashion to us.

Arthur argues that fiat currency can never be accepted by AI due to its arbitrary nature. Governments’ deliberate debasing of fiat via the mechanism of quantitative easing has been a dominant theme for the last decade. Arthur’s view (and mine coincidentally) is that we are soon to see a huge ramp-up in this highly destructive policy.

AI will demand clear rules enshrined in code for its choice of currency that must be censorship resistant, and only BTC with its high degree of decentralisation can fulfil AI’s needs:

“Bitcoin is thus the logical currency choice for any AI. It is purely digital, censorship resistant, provably scarce, and its intrinsic value is completely electricity-cost-dependent. There is nothing in existence today that comes close to challenging Bitcoin on these aspects.”

Which raises the intriguing possibility of a race to accumulate BTC being fought between TradFi in the form of spot BTC ETFs, and AI.

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Arthur addresses this point in the form of a range of price predictions.

He believes that this current bull-cycle will end in 2025 or 2026. Before then:

“If Bitcoin is seen as likely to be – or even starts to be – used by AIs, then we could see two separate manias combine into one mega mania: the mania of wanting to escape inflation within the fiat financial system, and the mania of wanting to own a piece of the next phase of human + computer evolution. The overlap of these two manias would likely drive investors to grossly overpay for growth, causing the value of the Bitcoin network to rise to silly levels.”

I am starting to like the sound of this.

Arthur builds a model based upon the potential size of the AI economy (a tricky one to estimate) and the BTC market cap to transaction value multiple:

“BTC Price Estimate = (([Size of AI Economy %] * [2022 $GDP / 365] * [Bitcoin Market Cap to Daily Transaction Value Multiple] * [100% The Velocity % of Payments]) / [Total BTC Supply]) + BTC/USD Spot Price”

Personally, I have a few questions regarding this model, but as Arthur is a busy man, I suspect I won’t get answers before my publishing deadline, so let’s cut him some slack and assume his model works.

The outcome of his model is this:

Low price prediction $65k

Median price prediction $129k

Mania price prediction $761k

I’ll take mania before the end of 2026.

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Arthur’s conclusion is a simple one:

“Remember – the market will overpay for Bitcoin network growth if it believes there is a possibility that my assumptions could be true in the future. The most money is made when the market price adjusts from “can never happen” to “maybe could happen.” Therefore, if you are long Bitcoin, this essay should be of particular interest to you, and I urge you to share it with as many people as possible.”

Which is exactly what I am doing.

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Incidentally, Arthur describes CBDCs as “the digital tools of the devil” which is very nicely phrased. I might steal it.