AI hype bleeds into cryptocurrencies

Artificial intelligence (AI) crypto tokens are rising in price this week, but price movements appear to be more of a crypto proxy for the AI ​​bubble. The rally comes as a JP Morgan report says traders are turning their attention to AI and away from blockchain.

“The rise in the price of AI-related cryptocurrencies can arguably be driven by real and tangible developments in the AI ​​and blockchain industry,” says Vasco Lopes, blockchain and artificial intelligence researcher at the NOVA School of Technology near Lisbon, Portugal. “However, AI-related cryptocurrencies are also affected by hype and investor sentiment, as the increased popularity of AI and AI-related products, such as the release of OpenAI’s ChatGPT language model, generates excitement and interest in the AI ​​sector.”

AI cryptos have reached a market cap of $4.27 billion, up 56% from last week. Although this is only 0.4% of the $1.07 trillion cryptocurrency market, the rapid increase has highlighted the role of AI in cryptocurrencies.

“AI is still such a new field, definitions are still being formed, and the actual utility of tokens in AI applications has yet to be tested,” said Noelle Acheson, former head of research at Genesis Trading and at CoinDesk. “It feels like the hype has outstripped the actual growth potential.”

Crypto markets are often driven by current trends, says Juan Leon, crypto researcher at Bitwise Investments. Without the right investment and development into projects, AI encryption risks becoming just a fad in an industry that has been fueled by hype.

And hype it is. Crypto AIs are led by The Graph’s GRT token, up 87% in the past seven days and 150% in the past month. Graph Network facilitates querying of blockchain data without going through a server. AGIX, the symbol of Singularity NET, which is building a marketplace for AI applications, has gained 116% in seven days and a staggering 327% in the past month. The top three crypto AIs are rounded out by Fetch’s FET, up 57% in the past seven days and 140% in the past month. Fetch aims to connect different types of blockchain and AI technologies.

The hype has largely been led by the explosive growth of ChatGPT, an AI-powered chatbot, and Dall-E, a tool that generates images from word-based descriptions both created by OpenAI. “There are benefits to the blockchain AI projects, but definitely technologies like ChatGPT create a sense of interest and FOMO [fear of missing out] about everything related to artificial intelligence, says Lopes.

The mania is reminiscent of the flood of initial coin offerings (ICOs) in the crypto market in the middle of the last decade. “This AI crypto cycle reminds me a bit of the ICO cycle in the sense that back then there was suddenly a blockchain-based token for every use case you can think of. Now we’re starting to see AI-based tokens pop up left and right.”

TronDAO announced on Wednesday the creation of a $100 million AI development fund dedicated to “encouraging the blending of artificial intelligence technology with blockchain technology.” TronDAO governs decisions for the Tron blockchain, and the new fund will focus on AI used for payment services, blockchain oracles and content creation. Tron blockchain’s governance token TRX fell nearly 3% today following the news, according to Nomics.

Wall Street traders have not been spared from the AI ​​seduction – AI surpassed blockchain as the technology expected to be the most influential in the next three years, according to a JP Morgan report. The study found that 53% of marketers surveyed, up from 25% last year, say AI and machine learning will be the most influential technology for them. Blockchain, tied with AI for the most influential technology in 2022, received only 12% of the vote this year.

“The pullbacks feel like an extension of traders looking for hot narratives regardless of actual value,” Acheson adds.

Analysts also pointed to a general risk-on investment sentiment among crypto investors, especially given favorable macroeconomic conditions driven by a slowdown in inflation and slowing US interest rate hikes. These price movements, says Acheson, “tend to be a sign that the general fear that dominated the market at the end of last year is finally dissipating.”