Cryptoverse: Investors pick their AI race horses
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[April 25, 2023] By
Lisa Pauline Mattackal
(Reuters) - What do you get when you cross cryptocurrencies with
artificial intelligence?
A seemingly sentient bitcoin that codes itself in the style of Japanese
haikus? Alas not, though you do get billions of dollars of trading in a
new class of crypto tokens.
The machine mania sweeping the tech world amid the launches of bots like
ChatGPT and Bard has reached the cryptoverse, with interest in tokens
tied to AI blockchain projects surging.
Average daily volumes for the biggest coins including SingularityNET,
Fetch.AI and Render topped $1 billion in early February, hitting a
two-year high, according to data firm Kaiko.
AI-linked blockchain products cover a gamut of services including
payments, trading models, machine-generated non-fungible tokens and
blockchain-based marketplaces for AI applications where users pay
developers in cryptocurrency.
"This is exciting, it's one of the first times machine-learning
applications are being brought on-chain in a big way," said Eric Chen,
CEO of decentralized finance platform Injective Labs, though he
cautioned: "The digital asset space is no stranger to hype, speculation
and overzealous expectations."
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So far, the investment returns are strong. The CoinDesk Indices
Computing Index, which includes AI-linked tokens, has risen 60% this
year with a significant spike in February as OpenAI's ChatGPT saw a
surge in usage.
While trading volumes retreated in March, they remain above the crypto
sector's long-term average, and many tokens have significantly
outperformed bitcoin with year-to-date returns ranging from 150% to
780%, said Kaiko analyst Dessislava Aubert.
There's also been increased investment in the sector, with examples
including CryptoGPT, where users can sell their data to AI companies,
which raised $10 million in funding this month.
Yet despite the strong returns this year, the AI-crypto sector remains
niche - the combined market cap of CoinGecko's AI-classified coins is
$2.7 billion, dwarfed by the $1.2 trillion total crypto market.
Some projects may be riding the AI wave without a sustainable plan, with
the relative newness of the space meaning winners will likely be few and
far between, market players warned.
"There's a place for AI and blockchain to see some synergy, but I don't
know how many of the current projects are using it well," said Ryan
Rasmussen, Bitwise research analyst.
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A representation of bitcoin is seen in
an illustration picture taken on June 23, 2017. REUTERS/Benoit
Tessier/File Photo
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"You have to look under the hood."
CRYPTO AI: BIG HOPE OR HYPE?
The potential of AI-linked crypto apps has investors hoping they can
sort through the hype to identify projects that can help solve some
problems, drive more users to blockchain products and guarantee some
solid returns.
"Some specific AI projects could actually end up being the 'killer
app' for public blockchains," said Pranav Kanade, portfolio manager
at VanEck.
He separates the AI-crypto world into products likely to see
near-term adoption as they solve immediate problems, and longer-term
bets.
In the near term, the rise of decentralized computing networks could
allow users with unused graphics processing units (GPU) capacity to
provide capacity to other users that could be used for
resource-intensive AI learning models, Kanade said.
Similarly, some industry watchers see blockchain-based marketplaces
as offering an easy way for system developers to gain market share
and smaller users to access new AI tech.
SingularityNET is one of the biggest such marketplaces and has seen
the market cap of its token jump from $52 million to over $414
million this year.
Other potential long-term use cases include using blockchain as
proof for distinguishing between AI and human-generated content.
Many investors are aware they may be in for the long haul, but are
hoping a few runaway successes will compensate for the risk, said
Todd Groth, head of index research at CoinDesk Indices.
"You're investing in projects, many will not see the light of day,"
he added. "You just need a few names that will do quite well."
(Reporting by Lisa Mattackal and Medha Singh in Bengaluru; Editing
by Vidya Ranganathan and Pravin Char)
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