Cryptoverse: Investors Pick Their AI Racehorses

April 25 (Reuters) – What do you get when you cross cryptocurrencies with artificial intelligence?

An apparently sentient bitcoin that encodes itself in the style of Japanese haikus? Unfortunately not, even if you get billions of dollars in trade in a new class of crypto-tokens.

The machine mania sweeping the tech world during the launches of bots such as ChatGPT and Bard has reached the crypto transition, with interest in tokens linked to AI blockchain projects growing.

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 range 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 into the chain in a big way,” said Eric Chen, CEO of decentralized finance platform Injective Labs, although he cautioned: “The digital asset space is no stranger to hype, speculation and overzealous expectations.”

So far, the return on investment is strong. The CoinDesk Indices Computing Index, which includes AI-linked tokens, is up 60% this year with a significant spike in February when OpenAI’s ChatGPT saw a spike in usage.

While trading volumes retreated in March, they remain above the crypto sector’s long-term average, and many tokens have clearly outperformed bitcoin with annual returns ranging from 150% to 780%, Kaiko analyst Dessislava Aubert said.

There has 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.

Despite the strong returns this year, the AI ​​crypto sector remains niche – the combined market capitalization of CoinGecko’s AI-classified coins is $2.7 billion, dwarfed by the total crypto market of $1.2 trillion.

Some projects may ride the AI ​​wave without a sustainable plan, with the relative newness of the space meaning winners are likely to be few and far between, market players warned.

“There is 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.

“You have to look under the hood.”

CRYPTO AI: GREAT HOPE OR HYPE?

The potential of AI-linked crypto apps has investors hoping that they can sort through the hype to identify projects that can help solve some problems, drive more users to blockchain products and guarantee solid returns.

“Some specific AI projects may actually end up being the ‘killer app’ for public blockchains,” said Pranav Kanade, portfolio manager at VanEck.

He divides the AI-crypto world into products that are likely to be adopted in the near term as they solve immediate problems, and long-term plays.

In the short term, the rise of decentralized computing networks may allow users with unused graphics processing unit (GPU) capacity to provide capacity to other users that can be used for resource-intensive AI learning models, Kanade said.

Similarly, some industry watchers see blockchain-based marketplaces as an easy way for system developers to gain market share and smaller users to access new AI technology.

SingularityNET is one of the largest such marketplaces and has seen the market capitalization of the token jump from $52 million to over $414 million this year.

Other potential long-term use cases include using blockchain as evidence to distinguish between AI and human-generated content.

Many investors realize they may be in for the long haul, but hope a few runaway successes will offset the risk, said Todd Groth, head of index research at CoinDesk Indices.

“You invest in projects, many will not see the light of day,” he added. “You just need a few names that will do pretty well.”

Reporting by Lisa Mattackal and Medha Singh in Bengaluru; Editing by Vidya Ranganathan and Pravin Char

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