Economic Truth: AI Supports the rise, Crypto Assets Become Political Assets

Written by: arndxt

Compiled by: Chopper, Foresight News

If you have read my previous article about macro dynamics, you might have glimpsed some insights. In this article, I will break down the true state of the current economy: the only engine driving GDP growth is artificial intelligence (AI); all other areas such as the labor market, household finances, affordability, and asset accessibility are declining; and everyone is waiting for a “cycle turning point,” but there is no such thing as a “cycle” today.

The truth is:

The market is no longer driven by fundamentals.

AI capital expenditure is the only pillar to avoid technological recession.

In 2026, a wave of liquidity will arrive, yet the market consensus has not even begun to price this in.

The gap between the rich and the poor has become a macro obstacle for policy adjustments.

The bottleneck of AI is not the GPU, but the energy.

Cryptocurrency is becoming the only asset class with real upside potential for the younger generation, which gives it political significance.

Do not misjudge the risks of this transformation, lest you miss the opportunity.

Decoupling of market dynamics and fundamentals

The price fluctuations over the past month have been completely unsupported by new economic data, yet have triggered severe volatility due to a shift in the Federal Reserve's stance.

The probability of interest rate cuts has repeatedly switched from 80% to 30% to 80% just based on comments from individual Federal Reserve officials. This phenomenon confirms the current core characteristic of the market: the influence of systemic capital flows far exceeds that of proactive macro views.

The following is evidence at the microstructural level:

The volatility target fund mechanically reduces leverage when volatility spikes and re-increases leverage when volatility declines.

These funds do not care about the “economy” because they only adjust their investment exposure based on one variable: the level of market volatility.

When market volatility increases, they reduce risk → sell; when volatility decreases, they increase risk → they buy. This leads to automatic selling when the market is weak and automatic buying when the market is strong, thereby amplifying bidirectional fluctuations.

2. Commodity Trading Advisors (CTAs) will switch long and short positions at preset trend levels, thereby generating forced flow.

CTA follows strict trend rules, with no subjective “opinions” involved, purely mechanical execution: buy when the price breaks a certain level, sell when the price falls below a certain level.

When enough CTAs hit the same threshold at the same time, it can trigger large-scale coordinated buying and selling, even if the fundamentals remain unchanged, and can even drive the entire index to fluctuate for several consecutive days.

3. The stock buyback window remains the largest source of net equity demand.

A company buying back its own stock is the largest net buyer in the stock market, surpassing the purchase scale of retail investors, hedge funds, and pension funds.

During the buyback window, the company injects tens of billions of dollars into the market every week, which leads to:

The buyback season market has inherent upward momentum.

The market clearly weakened after the buyback window closed.

Forming structural buying pressure unrelated to macro data

This is also the core reason why the stock market may still rise even when market sentiment is sluggish.

4. The inverted volatility (VIX) curve reflects a short-term hedge imbalance rather than “panic.”

Under normal circumstances, the long-term volatility (3-month VIX) is higher than the short-term volatility (1-month VIX). When this relationship reverses, it is often interpreted as “increasing panic”, but this phenomenon is now more driven by the following factors:

Short-term hedging demand

Options market makers adjust positions

Weekly Options Capital Inflow

Systematic strategies for hedging operations at the end of the month

This means: a surge in VIX ≠ panic, but rather a result of hedging fund flows.

This distinction is crucial; volatility is now driven by trading behavior rather than narrative logic.

The current market environment is more sensitive to sentiment and capital flows: economic data has become a lagging indicator of asset prices, while the Federal Reserve's communication has become a major trigger for volatility. Liquidity, position structure, and policy tone are replacing fundamentals in the price discovery process.

AI is the key to avoiding a full recession.

AI has become a stabilizer for the macro economy: it effectively replaces cyclical recruitment demands, supports corporate profitability, and maintains GDP growth even when the labor fundamentals are weak.

This means that the U.S. economy's reliance on AI capital spending far exceeds the level publicly acknowledged by policymakers.

Artificial intelligence is suppressing the labor demand for the one-third of the workforce with the lowest skills and most easily replaceable. This is typically where the effects of cyclical economic downturns are first seen.

The increase in productivity has masked what appeared to be a widespread deterioration in the labor market. Output remains stable as machines take over jobs previously done by entry-level workers.

The number of employees decreases, corporate profit margins increase, while families bear the socioeconomic burden. This shifts income from labor to capital—this is a typical dynamic of recession.

Capital formation related to artificial intelligence artificially maintained the resilience of GDP. Without capital expenditure in the field of artificial intelligence, the overall GDP data would be significantly weak.

Regulators and policymakers will inevitably support capital expenditures in artificial intelligence through industrial policies, credit expansion, or strategic incentives, as the alternative is economic recession.

The wealth gap has become a macro constraint.

Mike Green's proposal of “the poverty line ≈ 130,000 - 150,000 USD” has sparked strong backlash, and this phenomenon precisely illustrates how deeply resonant the issue is.

The core truth is as follows:

The cost of raising children exceeds rent / mortgage.

Housing has become structurally unaffordable.

Baby Boomers dominate asset ownership

The younger generation only holds income, without capital accumulation.

Asset inflation widens the wealth gap year by year.

The wealth gap will force adjustments in fiscal policy, regulatory stance, and asset market interventions. As cryptocurrencies serve as tools for the younger generation to participate in capital growth, their political significance will become increasingly prominent, and policymakers will adjust their attitudes accordingly.

The bottleneck for AI scaling is energy, not computing power.

Energy will become the new core of the narrative: the scaled development of the AI economy is inseparable from the simultaneous expansion of energy infrastructure.

The discussion about GPUs ignores more critical bottlenecks: power supply, grid capacity, nuclear and natural gas production capacity construction, cooling infrastructure, copper and key minerals, and data center site selection constraints.

Energy is becoming a limiting factor in the development of AI. In the next decade, the energy sector (especially nuclear power, natural gas, and grid modernization) will be one of the highest-leverage investment and policy directions.

The dual-track economy is emerging, and the gap continues to widen.

The US economy is splitting into two major sectors: the capital-driven AI sector and the labor-dependent traditional sector, with almost no overlap and increasingly differentiated incentive structures.

AI economy continues to expand:

High productivity

High profit margin

Light labor dependence

Under strategic protection

Attract capital inflow

The real economy continues to shrink:

Weak labor absorption capacity

Consumer pressure is high

Decreased liquidity

Asset Centralization

Inflation pressure

The most valuable companies in the next decade will be those that can reconcile or leverage this structural divergence.

Future Outlook

AI will receive policy support, as the alternative is recession.

The liquidity led by the Ministry of Finance will replace quantitative easing (QE) as the main policy channel.

Cryptocurrency will become a category of political assets linked to intergenerational equity.

The real bottleneck of AI is energy, not computing power.

In the next 12-18 months, the market will still be driven by emotions and capital flows.

The wealth gap will increasingly dominate policy decisions.