2025 Computing Power and the Prisoner's Dilemma: Why Crypto Missed the Machine Economy Boom

The paradox of 2025 has been stark and unforgiving. While artificial intelligence and computational infrastructure captured trillions in new capital value, the cryptocurrency sector found itself trapped in what can only be described as a collective prisoner’s dilemma. Token holders, anticipating future selling pressure, rushed to exit positions. Market makers and trading platforms, concerned only with short-term spreads, abandoned any pretense of long-term value alignment. The result: a market where rational individual behavior produced collectively destructive outcomes.

The year brought unprecedented regulatory clarity in the United States and a macro environment favorable to innovation. Five dimensions of blockchain-native finance expanded simultaneously: stablecoins, decentralized lending and trading, perpetual contracts, prediction markets, and digital asset treasuries. Yet none of this innovation translated into sustainable token appreciation. Instead, the market experienced forced liquidations, collapsed correlations across all crypto assets approaching unity, and the wholesale exit of patient capital from the space.

When Winners Control Bottlenecks, Not Narratives

The public markets in 2025 delivered a decisive lesson: the strongest performers were not those with the best stories, but those controlling physical scarcity and economic necessity. Companies like NVIDIA, TSMC, Micron, and Bloom Energy soared as capital flowed toward assets that machines must pass through—electricity, semiconductors, and specialized computing capacity.

In contrast, traditional infrastructure companies like Equinix underperformed despite ubiquity, revealing the market’s clear preference: generic capacity has minimal value compared to secure, customized, high-density computing power. The message was unambiguous—own what machines cannot avoid, not what they might choose.

The software sector similarly bifurcated along a single axis: mandatory versus optional. Platform companies embedding into critical workflows (Alphabet, Meta) continued compounding growth as AI strengthened their distribution advantages. Meanwhile, companies like ServiceNow and Datadog—despite strong technical capabilities—saw returns depressed by valuation corrections and competitive pressure from larger cloud providers. Elastic’s experience proved instructive: superior technology could not overcome the erosion caused by cloud-native alternatives and deteriorating unit economics.

The Tokenized Prisoner’s Dilemma: When Decentralization Destroys Value

The weakest-performing sector was unambiguously tokenized networks. Protocols attempting to monetize decentralized data, storage, and AI agents failed to convert usage into token value capture. Chainlink retained strategic importance but could not reconcile protocol revenues with sustainable token economics. Bittensor, crypto’s largest bet on AI infrastructure, generated activity without threatening centralized Web2 competitors. Projects like Giza achieved real traction yet remained trapped by token dilution and thin fee structures.

The market’s rejection was comprehensive and revealing: it no longer rewards “collaborative narratives” lacking mandatory charging mechanisms. Instead, capital concentrated in areas where economic forces already operate—where machines are already paying electricity bills, purchasing silicon, and engaging in computing contracts. The prisoner’s dilemma manifested most acutely here: individual protocols attempting decentralization could not collectively capture the value their networks generated.

Value Flows to What Already Exists, Not What Might Be

A striking contrast emerged between 2025’s winners and losers when mapped against time horizons. Foundation model companies like OpenAI and Anthropic achieved explosive revenue growth, yet structural vulnerabilities appeared: capital intensity, margin compression, and neutrality concerns became existential risks. Scale AI’s partial acquisition by Meta—which destroyed its market-neutral positioning and triggered customer flight—exemplified how quickly service-dependent models collapse when trust erodes.

In contrast, companies controlling distinct assets or workflows (Applied Intuition, Anduril, Samsara, emerging fleet operating systems) positioned themselves more durably. Their advantage was not narrative superiority but operational reality: enterprises had no choice but to adopt and pay for their solutions.

This pattern extended to private equity. Companies with exposure to existing capital expenditures (infrastructure procurement, computing power aggregation, data services already embedded in workflows) captured value in real-time. Those pursuing speculative thesis bets—however elegant in theory—struggled to translate conception into monetization.

The October 2025 Reckoning and Its Aftermath

The structural market failure of October 2025 crystallized these dynamics. Forced liquidations revealed systemic leverage concentrated in speculative positions, despite the fundamental diversity of token and asset types. The correlation spike approaching unity indicated not synchronized fundamental improvement but synchronized deleveraging desperation.

Yet this stress, while painful, constituted essential market clearing. For investors with 3-5 year horizons, distinguishing between temporary liquidity distress and structural deterioration became paramount. The decline in token prices was not a conclusion—merely information awaiting interpretation.

Redefining the Machine Economy: Where Capital Actually Flows

Stepping back to decade-scale patterns revealed the scale of the shift. The “Magnificent Seven” technology and AI companies increased market value by approximately $17 trillion annually at a 20% growth rate. The broader cryptocurrency asset class expanded by roughly $3 trillion during the same period, achieving a 70% compound annual growth rate. Yet Europe’s $20-30 trillion capital market base achieved essentially zero real progress over the decade, making government bonds at 3% yields oddly competitive.

This disparity was not coincidental. Robot Money—whether embodied in chip design, cloud infrastructure, or increasingly in programmable finance—represents genuine structural value creation. The winners in this transition will be those capturing economic activity already occurring at scale.

Early-stage funding discussions about robo-advisors (2009), neobanking (2011), and DeFi (2017) reveal a consistent pattern: terminology preceded business model clarity by 2-5 years. Today’s “machine economy” vocabulary may similarly precede obvious investment opportunities by years. The challenge lies in identifying value capture mechanisms where economic activity already exists, rather than speculating on where it might emerge.

The Three Frontiers of Positioning

For investors navigating 2026’s restructuring, three distinct opportunity categories emerged:

Machine Transaction Surfaces represent layers where machines or their operators are already conducting economic activity—payments, billing, measurement, routing, and the supporting compliance, custody, and settlement infrastructure. Returns flow from transaction volume, acquisitions, and regulatory positioning rather than narrative appreciation. Existing portfolio companies like Walapay and Nevermined exemplify this approach: they seat themselves at economic chokepoints already occupied by paying participants.

Applied Infrastructure With Budgets encompasses solutions enterprises already procure: computing power aggregation, data services integrated into workflows, tools featuring recurring expenditure and switching costs. Success depends on owning budget allocation and depth of enterprise integration—exemplified by companies like Yotta Labs and Exabits.

High-Novelty Asymmetrical Bets include frontier research (foundational AI models, frontier science) and IP-based platforms with uncertain timing but potentially enormous returns. Recent investments like Netholabs, dedicated to simulating complete digital mouse brain models, represent this category—scientifically rigorous with application timelines measured in years rather than quarters.

Recalibrating Token Exposure

Until structural issues in token markets resolve—likely requiring 12-24 months of market digestion—more aggressive equity positioning makes economic sense. Previous allocation of 40% tokens, 40% equity, and 20% flexible reserves will shift toward higher equity weighting. This reflects not ideological repositioning but pragmatic response to prisoner’s dilemma dynamics.

The token space requires additional time for forced liquidations to clear SPV overhangs from the 2021-2025 boom period. When secondary market repricing normalizes, opportunities may emerge. Until then, equity markets offer clearer cause-and-effect relationships between capital allocation and returns.

The Political Realignment Nobody Discusses

An understated force reshaping 2026 dynamics involves political centralization of machine economy initiatives. Rather than supporting decentralized Web3 alternatives, capital and regulatory favor concentrate around state-aligned actors (Musk and Trump initiatives in the US; DeepSeek and state-backed programs in China).

Robots intersect with national manufacturing and military-industrial infrastructure—terrains where centralized coordination historically outcompetes distributed governance. Simultaneously, creative industries (gaming, film, music) exhibit organized resistance to AI solutions, while technical sectors (software, science, mathematics) embrace AI as efficiency enhancement and business accelerator.

The collective illusion that decentralized networks will automatically outcompete centralized incumbents in infrastructure-dependent domains requires urgent revision. Decentralization’s value proposition resonates in censorship resistance and sovereignty, not in cost efficiency or technical performance at machine economy scale.

The Duality Coexisting Without Contradiction

Simultaneously, dozens of companies have achieved $100+ million annual revenues by serving users, while the market remains flooded with impotent or outright fraudulent projects. Both conditions coexist without paradox. Separating genuine adoption-driven businesses from hype-driven abstractions becomes the central analytical task.

The comprehensive reshuffling ahead will clarify which projects command real usage and which constitute spectral assets awaiting liquidation. This realignment contains opportunities for disciplined investors capable of distinguishing between narrative momentum and economic traction. The path forward requires cautious navigation of increasingly obvious opportunity and pitfall categories—a tightrope walk that only the disciplined will complete successfully.