AI Altcoins Rally: Just a Hype or Sustainable?

AI-themed cryptocurrencies and meme coins surpassed Bitcoin in the previous week, despite Bitcoin’s record-breaking high of $70,184 on March 8. AI altcoins and big data saw a 43.4% increase in trading volume and an 11.6% rise in market capitalization, accounting for 1.6% of the $2.6 trillion crypto market dominated by Bitcoin at 51.72%.  The AI altcoins rallying indicate growing investor confidence, but questions remain about their long-term sustainability and utility.

Market Dynamics

In a recent report from Coinbase, a leading cryptocurrency exchange, the value proposition of AI-related tokens has come under scrutiny. Despite the ongoing exploration of artificial intelligence (AI) in various industries, the report suggests that the current excitement surrounding AI tokens may not align with their long-term value.

Currently, AI tokens collectively hold a market capitalization of over $51 billion, serving various AI-based projects and applications. NEAR Protocol, Render, The Graph, Fetch.ai, and SingularityNET have all experienced substantial increases in their prices. NEAR Protocol price stands out with a notable surge of 53.12%, followed closely by Render at 49.67%. The Graph showed a respectable increase of 26.89%, while Fetch.ai exhibited the highest surge among the listed altcoins, boasting an impressive 84.14% rise. SingularityNET also saw a significant uptrend, with a seven-day percentage change of 53.44%.

Despite their recent price surges, Coinbase cautions that a lack of clear adoption forecasting and metrics may fuel speculative trading, which could be unsustainable in the long run.

The State of AI Tokens

David Han, a research analyst at Coinbase, has expressed doubts about the future sustainability of AI tokens. He highlights that despite the appealing idea of decentralized AI, the current environment predominantly depends on centralized elements and data sources. This inconsistency presents a challenge to the long-term success of AI tokens.

Although there is doubt, AI tokens have demonstrated strong performance in the short term, surpassing main cryptocurrencies like Bitcoin and Ether, as well as well-known tech stocks like Nvidia and Microsoft. Nonetheless, this increase in worth could be influenced more by market sentiment than actual value.

An illustration of how AI tokens respond to AI market news is evident in the case of Worldcoin. Despite releasing its World ID 2.0 upgrade on December 13, 2023, with little fanfare, the token saw a significant 50% increase in value following Sam Altman’s endorsement on December 15. Speculation about Worldcoin’s future persists, partly due to Altman’s association as the co-founder of Tools for Humanity, the organization behind Worldcoin. Similarly, OpenAI’s Sora release on February 15, 2024, resulted in a nearly threefold price increase for Worldcoin, despite no official announcements on their social media channels or blog. As of now, Worldcoin’s fully diluted valuation stands at $80 billion, similar to OpenAI’s $86 billion valuation on February 16, 2024, despite the latter generating $2 billion in annualized revenue.

Opportunities and Challenges

Two areas of opportunity have been suggested for for the crypto AI ecosystem: improving blockchain data for better transparency and analysis, and decentralizing the predominantly centralized AI infrastructure. However, a decentralized AI future is far from guaranteed, highlighting the uncertainty surrounding the industry’s trajectory.

While the crypto AI narrative continues to gain traction, the importance of driving meaningful adoption beyond mere decentralization. It is crucial to consider the broader business and regulatory landscape when assessing the potential of AI tokens.

Matt Hougan, Chief Investment Officer at Bitwise suggests that real utility is demonstrated in technological advancements such as the Dencun upgrade on Ethereum and the emergence of Layer 2 solutions. These advancements enhance the capabilities of public blockchains.

9/ Things like the Dencun upgrade on Ethereum and the rise of Layer 2s are real technological advances that make non-monetary or tangentially-monetary uses of public blockchain much more interesting than they were in the past.

— Matt Hougan (@Matt_Hougan) March 8, 2024

Vitalik Buterin, one of the co-founders of Ethereum, believes that AI can play a crucial role in identifying and fixing bugs in the Ethereum network, addressing a significant technical problem that the platform encounters.

Hougan cautions that not all tokens experiencing price surges deserve investor attention. Investors are shifting profits from Bitcoin to riskier crypto assets, possibly inflating their value above their true worth. This trend is prominent in altcoins like memecoins and AI-themed cryptocurrencies, showing significant gains over Bitcoin. Caution is advised as crypto scams are becoming more advanced, highlighting the importance of scrutinizing project founders and developers, particularly with the surge in AI-based scams

Conclusion

The intersection of AI and crypto is constantly changing, so it’s important to approach it carefully. Decentralized solutions need to show clear advantages over centralized ones to be widely accepted. The future of AI tokens is uncertain and their success depends on solving real-world problems for users. It’s important to carefully navigate the evolving industry to ensure long-term success.