Cathie Wood of Ark Invest predicts that bitcoin will prosper in the face of ‘deflationary turmoil’ brought on by artificial intelligence and technological advancements.

Exponential technology will drive down prices and challenge traditional finance, for which bitcoin provides a trustless alternative, stated Wood during Bitcoin Investor Week.

Ark Invest CEO Cathie Wood in a discussion with ProCap Financial CEO Anthony Pompliano at the Bitcoin Investor Week in New York. (CoinDesk)

Key points:

• Cathie Wood contends that bitcoin serves as a hedge not only against inflation but also against an impending wave of technology-induced, productivity-driven deflation.
• She asserts that rapid reductions in costs associated with artificial intelligence and other exponential technologies will instigate “deflationary chaos” that traditional financial entities and the Federal Reserve are ill-equipped to handle.
• According to her perspective, bitcoin’s decentralized framework and capped supply render it a more secure alternative to vulnerable, debt-oriented financial systems that may be pressured by deflation and disrupted business models.

New York — Bitcoin BTC$65,998.73 is not merely a hedge against inflation, according to ARK Invest CEO Cathie Wood, but against a more disruptive force: deflation fueled by technological advancements.

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In a discussion with Anthony Pompliano at Bitcoin Investor Week in New York, Wood posited that established financial structures are not ready for an imminent “productivity shock” driven by artificial intelligence (AI), robotics, and other exponential technologies. She indicated that this shock will lead to rapid price decreases, disrupt existing business models, and create what she termed “deflationary chaos.”

“If these technologies are so deflationary, it’s going to be challenging for the traditional world — accustomed to 2% to 3% inflation — to adapt,” Wood stated. “They’ll need to adopt these technologies more swiftly than anticipated.”

In her opinion, this deflation won’t arise from an economic downturn but from innovations that significantly reduce costs and enhance productivity. She referenced statistics showing AI training expenses decreasing by 75% annually and inference costs (the expenses involved in generating an AI response) plummeting by as much as 98% each year. Consequently, businesses are achieving much greater efficiency with fewer resources, resulting in lower prices.

Wood expressed that this type of innovation-driven deflation is being misinterpreted by the Federal Reserve, which continues to depend on historical data. “They could overlook this and be compelled to react when there’s more turmoil present,” she cautioned.

In such a scenario — where traditional financial institutions find themselves unprepared — bitcoin’s value proposition becomes more evident.

“Bitcoin serves as a hedge against both inflation and deflation,” she stated. “The disruptive aspect of this is… turmoil everywhere,” alluding to underperformance in software-as-a-service stocks and emerging counterparty risks in sectors like private equity and private credit. “Bitcoin does not face that issue.”

Bitcoin, she maintained, offers a trustless alternative that is shielded from the vulnerabilities of conventional finance. As central counterparties and traditional institutions experience pressure, bitcoin’s decentralized structure and limited supply become strategic advantages.

Wood also highlighted that the straightforward nature of bitcoin contrasts with the complexities of layered financial systems, which may encounter challenges as deflation squeezes profit margins and undermines debt-driven growth models.

“This is the opposite of the tech and telecom bubble,” she remarked. “At that time, investors invested in technology when the innovations were not yet ready. Now, they are real — and we are witnessing the other side of the bubble.”

She underscored that ARK’s portfolios have been constructed around the convergence of disruptive technologies, including blockchain, for several years. The firm continues to be one of the largest stakeholders in Coinbase (COIN) and Robinhood (HOOD), among various other investments in cryptocurrency enterprises.

Although markets are still experiencing fluctuations, Wood asserted that bitcoin — and investments focused on innovation more broadly — are positioned to gain as the economic narrative transitions from inflation to productivity-driven deflation.

“Truth will prevail,” she concluded. “We believe we are aligned with the direction of change.”