Welcome to the US Crypto News Morning Briefing

Your essential rundown of the most important developments in crypto for the day ahead is here!

Grab a cup of coffee because the next few weeks may be more pivotal than they appear. While the headlines mostly focus on economic bubbles and looming slowdowns, Ark Invest CEO Cathie Wood has highlighted a significant shift in liquidity, policy, and AI adoption that could reshape the landscape for both tech and crypto.

Crypto News of the Day: Cathie Wood Talks About AI’s “Productivity Drought”

In a recent analysis, ARK Invest pointed out that US liquidity is returning more rapidly than anticipated, with Wood suggesting this could align with a misunderstood trend in the tech industry: the growing gap between consumer AI adoption and enterprise productivity.

Despite the warnings of an impending AI bubble, ARK Invest believes we are merely at the start of a recovery, driven by three key factors:

• Increased liquidity
• Policy easing
• Rising commercial demand for AI

Reversal in Market Liquidity

ARK notes that market liquidity has already begun to rebound after hitting a multi-year low last October. A recent government shutdown had drained around $621 billion from the system, but the reopening has already injected $70 billion back into markets, with expectations of $300 billion more in the coming weeks as the Treasury General Account stabilizes.

This liquidity surge is also coinciding with a more dovish approach from the Federal Reserve, which has pushed the market-implied odds for a near-term rate cut to about 90%.

End of Quantitative Tightening

There’s an upcoming inflection point as quantitative tightening is set to wrap up on December 1. ARK Invest believes the market has yet to fully account for this shift. The firm stated, “With liquidity returning, quantitative tightening ending December 1, and monetary policy turning supportive, we believe conditions are building for markets to reverse recent drawdowns potentially.”

AI’s Productivity Drought as a Bull Market Catalyzer

Cathie Wood is taking her insights further. In a recent webinar, she argued that the liquidity challenges faced by AI and crypto are on the verge of reversing. Market reactions reflected optimism, as ARK’s holdings jumped 8% post-discussion.

Wood contests the narrative claiming that AI is experiencing a bubble by pointing to real gains in commercial traction, evident in Palantir’s recent earnings report, which revealed a triple-digit increase in US commercial revenue.

Structural vs. Cyclical Lag

This phenomenon underlies ARK’s thesis: while consumer AI is rapidly advancing, enterprise adoption seems to be lagging, not out of cyclical reasons but due to structural factors. According to Wood, considerable time will be required for enterprises to restructure their operations and harness the benefits of AI fully before observable productivity gains materialize.

Recent MIT research supports this by indicating that organizations aren’t yet witnessing productivity from AI due to outdated internal systems and workflows.

CEO Investment Cycles

However, ARK argues that this “productivity drought” could spur CEOs into fast-tracking investment cycles. As Wood eloquently puts it, decision-makers are realizing, “we’ve got to do this or we’re going to lose our competitive edge out there.”

Energy Bottlenecks as a Risk Factor

One significant concern, however, is an energy bottleneck. The demand for AI-compute resources is ballooning so rapidly that up to 20% of data center projects are encountering delays.

If this liquidity wave manages to enhance AI and crypto, it will hinge on whether energy infrastructure can expand swiftly enough to meet growing demands. ARK believes the conditions are favorable, noting:

• Increasing liquidity
• Conclusion of quantitative tightening
• A dovish Fed
• Accelerating commercial AI investment

If Wood’s analysis holds true, the markets may not be poised for an AI bubble but could be on the cusp of a genuine new cycle.

Chart of the Day

Interest Rate Cut Probabilities

Source: CME FedWatch Tool

US Money Supply (M2)

Source: TradingView

Byte-Sized Alpha

Here’s a quick summary of other US crypto news to follow today:

Crypto Equities Pre-Market Overview

Crypto equities market open race: Google Finance

Stay tuned for more updates as the day unfolds!