If the AI Boom Goes Bust, What Happens to Crypto? Here's the Most Likely Scenario for the Crypto Market.
While falling stock prices are rarely good for crypto, an AI bust might be an exception to the pattern.
The AI boom, if it turns into a bust, could have significant implications for the crypto market. This possibility is currently concerning as AI chip stocks are performing poorly. The possible outcomes of such a collapse can be mapped out by considering three scenarios: a base case, a bull case, and a bear case. Bitcoin is anticipated to act as a bellwether in all three scenarios.
In the base case, most cryptocurrencies, including Bitcoin, could suffer a major decline alongside AI stocks. This fall could be severe, potentially leading to panic among investors. Bitcoin, currently 39% below its all-time high, might become a destination for fleeing capital, as it is already marked down from its previous frothiness and has a substantial market share.
Ethereum and Solana might recover later than Bitcoin, as they host numerous AI tokens whose froth would need to clear first. Crypto AI plays would likely suffer the most and may not recover afterward. In the bull case, Bitcoin and other major cryptocurrencies, along with strong new altcoins like Hyperliquid, could swiftly bounce back after the AI bust.
This scenario is possible because many crypto majors are not directly affected by AI stock declines. If there's a crypto bull market ongoing, rising coin prices could attract more capital from AI stocks. In the bear case, a broad risk-off sell-off could severely damage most cryptocurrencies, including Bitcoin. Even with a less hawkish Federal Reserve, many small AI tokens could potentially go to zero, and even established players like Bittensor might face significant challenges.
However, even in this bear case, Bitcoin's investment thesis would likely remain largely unaffected. The base case is considered to have about a 70% chance of occurring, followed by a 20% likelihood of the bull case and a 10% probability of the bear case. The author plans to invest in all three scenarios but anticipates buying more Bitcoin and Hyperliquid in the event of the bear case, while being less inclined to invest in Solana and Ethereum due to their greater exposure to AI demand.
Written by urgent.news from Motley Fool's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
