What if AI and crypto aren’t bubbles? That could be a real nightmare

Here’s a thought that might keep you up at night: what if the massive amounts of money being poured into artificial intelligence and cryptocurrency aren’t just a speculative bubble ready to pop? What if those trillions of dollars turn out to be genuinely good investments? Because if that’s the case, we could be heading for some seriously epic – and terrifying – disruption.

Usually, when we talk about speculative frenzies, they’re fun for a bit until the last people to jump in lose everything. Think of the Dutch tulip mania in 1635 or the comic book and silver bubbles of the late 80s – a bit of a mess, but no world-ending disaster. Sometimes, the losses are so huge that banks go bust, freezing the entire financial system and plunging us into recession and unemployment, like in 1929 or 2008.

Then there are those times when the thing everyone’s speculating on is actually real and valuable, but people just get way too carried away and pay way too much for it. In those scenarios, the early investors lose their shirts, but later on, things settle, and new investors make a fortune – much like the internet bubble of the 1990s.

What we haven’t seen much of are speculative manias where the first investors win because there’s no bust at all.

AI companies are absolutely skyrocketing

So, what if this dual digital boom of the mid-2020s – AI and crypto – goes down in history as the first of those?

Somewhere between $3 trillion and $6 trillion has been dumped into building AI infrastructure and software. Believe it or not, that’s almost solely responsible for all the US economic growth we’ve seen in the last year. The top 10 American AI companies alone have driven most of the US stock market’s gains over the past two years and are now valued at a mind-boggling $35 trillion – that’s almost half the entire market!

Meanwhile, there are something like 20,000 cryptocurrencies out there, collectively worth $5.8 trillion, with Bitcoin leading the charge, making up more than half of that.

Add it all up, and the total cash riding on AI and crypto bets is more than a quarter of the entire global GDP. It’s quite possibly the biggest technology investment boom/bubble in history.

If it all collapses, as many predict, that would be bad. Possibly very bad if it doesn’t stop soon. But if it doesn’t collapse at all, it could actually be catastrophic.

AI is going to justify all that investment by doing two main things: replacing human workers and making human workers more efficient. Plus, it’ll rake in cash from subscriptions and advertising. ChatGPT and its peers are undeniably useful tools, but then you see them used to create fake videos to trick people into voting for crooks, or fake nude videos of unsuspecting classmates, or even just spitting out exam answers. That’s not so great. And that’s not even getting into the nightmare scenario some AI experts worry about: AI becoming self-aware, self-sustaining, and deciding humanity is a planetary infection that needs to be wiped out.

More immediately, and perhaps more chillingly, since ChatGPT launched in 2022, the percentage of online articles written by AI, rather than humans, has shot up from under 10% to 52%. Yep, there are now more AI-written articles than human ones, and it’s still climbing. To what? 100%?

Companies will keep firing people

Estimates for permanent unemployment due to AI range from 10% to a terrifying 50%. Let’s get one comforting thought out of the way right now: it won’t be zero.

Companies are already laying people off because of AI, and guess what? The stock market is rewarding them for it. That means they’re going to keep doing it. The weavers who lost their jobs to mechanical looms during the Industrial Revolution didn’t suddenly get jobs in the factories. This time around, the writers, drivers, and call center staff losing their jobs aren’t going to become computer operators or software coders.

Economic historians call the period between 1790 and 1840 the “Engels Pause,” named after philosopher Friedrich Engels. It describes a time when British working-class wages stalled and unemployment rose, even as the country’s GDP grew rapidly thanks to new technology. That “pause” lasted 50 years.

In a strange way, 50% unemployment might actually be better than the more commonly predicted 10-15%. Why? Because if half the population was out of work, there would be no doubt that we’d need a complete rethink of our tax system, welfare, and society as a whole – including a universal income funded by AI profits.

But 10-15% unemployment? That happens fairly often; we call it a recession. Except in this case, it wouldn’t be a recession. It would be the exact opposite – a productivity-driven GDP boom, just like the Engels Pause. So, the usual tools for fighting unemployment, like adjusting interest rates or government spending, wouldn’t be an option because they’d just cause inflation. And 10-15% might not be enough unemployment to force a complete overhaul of our economic system, just enough to cause a lifetime of misery for a significant number of people while the wealthy get even richer.

Meanwhile, in crypto-land…

As for cryptocurrencies – Bitcoin, Ethereum, Cardano, and the other 19,255 or so that have popped into existence – they actually started with a noble goal: to give people a platform to deal directly with each other, peer-to-peer, without needing expensive financial institutions. Bitcoin’s creator, Satoshi Nakamoto, started his 2008 white paper by pointing out how internet commerce relies almost entirely on financial institutions acting as trusted third parties. While it works okay, he argued, it still has inherent weaknesses due to relying on trust. He invented the blockchain to replace that trust with cryptographic proof, allowing two people to confidently transact without a middleman – like a bank. And thus, Bitcoin was born.

But then, Bitcoin and all its blockchain cousins became a huge speculative game. And just like with AI, if they end up being worth all the money that’s been bet on them, it could be terrible. For starters, the intermediaries they were designed to replace employ a lot of people. More importantly, crypto’s anonymity is a perfect breeding ground for scams and money laundering.

For example, there’s been talk of the Trump family using two cryptocurrencies – the $Trump coin and World Liberty Financial – for some pretty brazen presidential “grift.” Last week, the Australian Financial Review reported that Australians are feeding $275 million a year into crypto ATMs, with 1,800 across the country. One heart-wrenching story involved an 83-year-old woman, referred to as Mary, who was robbed of $364,000 she fed, note by note, into one of these machines. Police and prosecutors are now calling crypto ATMs “getaway cars” for scammers.

One way to potentially hit the reset button on AI and crypto, giving authorities a chance to catch up, would be for these bubbles to burst, and for those early investors to lose their shirts. There’s a strong chance that could happen.

But what if they’re not bubbles? What if there’s no bust, and they simply transition into being genuinely good, highly disruptive investments?

Honestly, it’s almost too frightening to think about.