AI Continues to Drive Bitcoin Volatility

The artificial-intelligence boom has created a new macro headwind for Bitcoin, as massive infrastructure spending competes for long-term capital. The Federal Reserve's minutes showed market participants citing heavy private debt issuance for AI infrastructure as a factor pushing Treasury yields higher.

Causes of Increased Borrowing Costs

The increased borrowing costs are attributed to the massive infrastructure spending by technology companies, which is competing with the Fed's tightening cycle for long-term capital. The Bank for International Settlements (BIS) estimates that the five largest technology companies will spend over $1 trillion on AI-related capital expenditure across 2025 and 2026.

The increased borrowing costs and term premiums make it challenging for Bitcoin to compete with government securities, which offer a substantial return before taking the volatility and drawdown risk associated with Bitcoin. The Fed's minutes also showed that companies benefiting directly from infrastructure spending outperformed the broader market, with stronger actual and expected earnings supporting equity prices.

Potential Reversal of the Boom

The longer-term risk is that the investment race becomes too successful at creating capacity, leading to financial stress and forced asset sales if revenue expectations disappoint. This creates a second, very different Bitcoin scenario, where the investment race ultimately produces excess computing capacity and a downturn.

Speculative Path for Bitcoin

Arthur Hayes, the co-founder of the defunct BitMEX exchange, argues that the data-center race will ultimately produce excess computing capacity and a downturn. He expects policymakers to eventually respond with liquidity support, creating conditions that would favor Bitcoin and other crypto assets.