AI encryption fears are the latest “wall of worry” — an old market adage describing a rally that advances as investors digest successive bouts of anxiety — that the cryptocurrency market must climb at the beginning of a mega bull run, according to Arthur Hayes, chief investment officer of crypto investment firm Maelstrom.

Hayes, who co-founded the BitMEX cryptocurrency exchange, laid out his bull-market argument in posts on X on Oct. 8. He described this year's anxiety as FUD — the industry shorthand for fear, uncertainty, and doubt — and compared it with earlier periods of distress that preceded prior rallies: Bitcoin's 2017 block-size dispute, which centered on how much transaction data Bitcoin blocks should hold; the pandemic; and the aftermath of FTX's collapse amid rising interest rates.

Liquidity as the Driving Force

The forecast builds on Hayes' earlier argument that government efforts to manage borrowing costs can support digital assets. In an Aug. 24 essay, he contended that expanding dollar liquidity could flow into bitcoin and other cryptocurrencies, framing financial conditions as a key driver of investment demand.

Greater availability of money and credit underpins his expectation that policy responses to financial pressure could lift prices. Global liquidity describes those conditions across the financial system. In Hayes' scenario, capital released through government intervention could reach speculative investments, including cryptocurrencies.

In the same essay, Hayes tied that reasoning to the U.S. Treasury's expanded bond repurchases, arguing that the buybacks supported a new bitcoin bull market. These debt-management operations purchase outstanding government securities. He viewed their effects on yields as favorable to risk assets, while distinguishing them from Federal Reserve asset purchases, in which the central bank expands its own balance sheet rather than managing the Treasury's outstanding debt.

An AI Bust as a Potential Catalyst

Hayes' AI-bust scenario anticipates a larger intervention if heavily financed AI infrastructure encounters financial stress. In an interview published Oct. 2, he projected that an AI bust could trigger multitrillion-dollar support, potentially benefiting cryptocurrencies through money creation. He placed the prospective reckoning around 2027 or 2028. The scenario speaks to a broader question in technology and credit markets, where the AI buildout — spanning data centers, chips, and power capacity — has been financed at enormous scale. Within his framework, the markers to track are the trajectory of Treasury debt management and any signs of strain in AI-related financing.

The AI-encryption narrative itself remains disputed: critics have rejected claims of an imminent AI breakthrough, arguing there is no evidence of a break in established cryptographic assumptions. That objection addresses the technical premise behind the anxiety Hayes incorporated into his bullish analogy.

AI-Assisted Security Findings

Separately, AI-assisted security work has shown how automated analysis can uncover weaknesses in existing crypto software. A researcher examining Zcash — a privacy-focused cryptocurrency whose shielded transactions use zero-knowledge proofs to conceal transaction details — identified a flaw in the protocol's shielded transaction system, illustrating the role of AI-assisted vulnerability discovery in reviewing older code. The finding involved a software defect rather than a defeat of the mathematical protections underlying digital signatures. Developers patched the vulnerability within days of its discovery.

Source: CryptoNewsNet