Speculative manias are reshaping global finance. Today’s capital supply chain is being distorted by two bubbles — in cryptocurrencies and artificial intelligence — and by an aggressive political intervention that threatens America’s scientific foundation. Together, these forces could redefine the trajectory of technology, investment, and innovation for decades to come.
The Rise of Parallel Bubbles
Financial markets are showing clear signs of speculative excess. On one side is cryptocurrency, an asset class with no intrinsic cash flow, whose value depends entirely on resale expectations. Many liken it to the 17th-century Dutch tulip mania. On the other is artificial intelligence, a transformative technology whose true economic potential remains uncertain but is attracting sky-high valuations.
Both bubbles are fueled by investors paying extraordinary prices for illiquid assets with little to no governance rights. The roots of this frenzy lie in years of negative real interest rates, which drove capital into riskier bets. Once speculation began, fear of missing out amplified the surge.
History shows bubbles often follow three warning signs: demand rises as prices increase, soaring valuations attract new supply, and uninformed retail investors pile in. All three indicators are flashing red in both crypto and AI markets.
Diverging Paths
While similar in dynamics, the futures of crypto and AI differ. Crypto’s growth hinges on political support, particularly the Trump administration’s deregulatory push. With heavy industry lobbying, the sector could maintain momentum through the 2026 midterm elections.
AI, however, faces a tougher test. Sooner or later, today’s valuations must be justified by sustainable revenues. Billions are being invested in computing infrastructure, but viable, large-scale applications remain limited. Unless AI companies can generate durable positive cash flows, the bubble will eventually deflate.
The economic challenge is structural. High fixed costs and low marginal costs mean that as prices fall toward marginal cost, profitability evaporates. Historically, such dynamics led to either regulated monopolies or fragile oligopolies. Railroads, electricity, and the internet all followed this path — periods of speculative excess, bankruptcies, and eventual state intervention.
The Compute-Energy Stack
Analysts compare today’s “compute-energy stack” — the vast data centers and energy-intensive infrastructure powering AI — to the railroads and power grids of earlier eras. Capital is being poured into assets whose value remains uncertain. For this bubble to resolve smoothly without crises would be unprecedented.
As history suggests, transformative networks rarely emerge without destructive cycles of overinvestment, crashes, and eventual consolidation.
America’s Broken Innovation Supply Chain
Beyond financial speculation, a more profound shift is underway in the U.S. innovation system. For decades, a steady pipeline linked federal funding to universities, then to startups and established firms. This model underpinned America’s global leadership in science and technology.
That supply chain is now under pressure. The Trump administration has cut funding to agencies like the NIH, NSF, and ARPA, while targeting research universities — institutions that have long been engines of discovery. Driven by ideological goals outlined in the Heritage Foundation’s “Project 2025,” the program threatens to dismantle the very foundations of American science, leaving only the Department of Defense largely untouched.
The potential consequences are immense. Without strong public support for research, the U.S. risks losing its edge in the innovation economy that has powered unprecedented material progress.
Venture Capital in Flux
The AI and crypto bubbles also challenge the venture capital model. Historically, venture firms partnered with universities and startups to commercialize breakthroughs. But much of the speculative capital in crypto has come from retail investors, while AI funding has been dominated by Big Tech and mega-deals like SoftBank’s $40 billion investment in OpenAI.
Traditional venture capital has struggled. Returns and exits have been scarce for years, leaving the industry split between smaller firms sticking to early-stage governance models and larger ones morphing into private equity-style asset managers. The flow of capital into speculative AI bets has drained dry powder from funds raised during the unicorn boom of 2021.
With America’s innovation chain weakening, venture capital’s future may lie elsewhere. China and Europe could assume greater roles, while U.S. influence diminishes. Rebuilding the system that took three generations to establish will be a formidable challenge.
The Bigger Picture
Crypto and AI represent the speculative edge of today’s financial landscape. Both are fueled by vast capital inflows, political dynamics, and technological hype. Yet their outcomes are likely to diverge: crypto’s fate is tethered to politics, while AI’s depends on whether economic fundamentals can eventually support its sky-high valuations.
Overlaying these market dynamics is a deeper crisis: the systematic weakening of America’s scientific infrastructure. Without it, the innovation machine that has long driven progress may falter, leaving future breakthroughs — and the industries they spawn — to other parts of the world.
In the end, the real question is not just when the bubbles will burst, but what kind of innovation system will remain after they do.
