Here’s why artificial intelligence-focused cryptocurrencies are significantly outperforming Bitcoin

Crypto markets are known to be driven by narratives, and artificial intelligence (AI) is the latest trend.

Prominent traders on Crypto Twitter herald AI-based tokens as the sector that could lead next bull market cycle. They may be right so far: Such tokens are up an average of 80% in the past week alone, CryptoSlate data shows.

Among the biggest winners have been tokens for platforms such as Alethea’s Artificial Liquid Intelligence (ALI), fetch.ai (FET) and SingularityNET (AGIX), which have surged as much as 220%, as CoinDesk previously reported.

Shares of AI-based upstarts such as Image Generation AI (IMGNAI) have more than tripled over a two-week period. The protocol allows users to generate artwork using textual disturbances on social platforms such as Discord.

Once-popular tokens of 2018 and 2021, such as Big Data Protocol (BDP) and Measurable Data (MDT), appear to have jumped on the hype with tweets that seem reminiscent investors on how to use AI technology in their blockchain applications.

BDP has risen 2,100% in the past week, CoinGecko data shows, while MDT has jumped 150%. Both protocols use their tokens to commoditize data, allowing suppliers and buyers to exchange data securely and anonymously.

Crypto majors like bitcoin and ether have paled in comparison, rising just 30% each in the past month despite fundamental catalysts. However, the market capitalization of major tokens is upwards of $300 billion, which means they require significant investment and public interest for their prices to increase multiple times in a few weeks.

AI broadly refers to the simulation of human intelligence in machines programmed to think and act like humans. Popular applications for this technology have so far been limited to chatbots, self-driving cars, online marketplace search optimization and image generation software – but futuristic uses envision fully autonomous cities, cyborg humans and interstellar travel.

Much of the recent surge in AI tokens emerged after the public launch of chatbot ChatGPT and image generation software Dall-E in mid-2022. Both are traditional software that do not use cryptocurrencies or blockchain and were launched by OpenAI, which recently raised 10 billion dollars from Microsoft at a value of 29 billion dollars.

Such institutional interest has helped create a compelling case for crypto traders to bet on AI-focused tokens as the next growth sector.

“The growth opportunity around the AI ​​and Web3 space combines early interest, potential and hype,” says Ravindra Kumar, founder of crypto wallet Frontier. “While it is true that there may be some hype around AI intervention in the crypto space, we are seeing the emergence of innovative and compelling use cases.’

Aditya Khanduri, Head of Marketing at Biconomy, takes a softer approach: “I think the current AI trend is still quite speculative, leading to a jump for tokens like OCEAN, ALI, AGIX. Some of the tokens with more buzz and followers have pumped, and it’s less about the actual technology behind it.”

“This is because the current AI tokens and Web3 projects do not yet know what these decentralized AI tools look like. There are many unanswered challenges and a lot to figure out,” Khanduri told CoinDesk in a recent chat.

The likes of Khanduri say token-based usage while scaling AI software is a difficult problem to solve.

“Say an AI tool reaches 250 million users. What will its infra look like? How will people use it? How will the data be trained? Where does the token fit in? Could you even have a way to reward people for their data if you used it to train your models?” he said.

Meanwhile, some market watchers remain wary of the AI ​​token hype.

“When the market starts to pick up a bit, all kinds of new trends come out of the woodwork. And they are not all as solid as they may appear, says financial market consultant Valentina Drofa to CoinDesk.

“There is a risk that this whole ‘new trend’ is going to end up in empty hype, as there are a lot of speculators who will try to use short-term price pumps,” Drofa added, referring to the recent multiple gains set up of some tokens.

“The industry at large will end up dealing with the long-term fallout and another dent in its image. Such cycles become quite tiresome and sad to observe over and over again,” she said.