The $26bn crypto AI market rockets 30% in a day, but Coinbase says value ‘overstated’

The soaring prices of tokens representing artificial-intelligence crypto projects reflect more hype than actual use, a new research report from crypto exchange Coinbase says.

The projects faces stiff competition and technical hurdles that could kneecap them, the report written by David Han, a research analyst at Coinbase, says.

“Our contrarian view is that the value potential for many AI tokens may be overstated as a result of broad attention on the AI industry, and that many AI tokens may lack sustainable demand side drivers in the short to medium term,” Han wrote in the report on Wednesday.

‘Uphill battle’

The total value of crypto projects has surged to $26 billion this year, according to CoinGecko. Some 30% of those gains took place in the past day alone on the heels of another increase in the stock of Nvidia, the market leader in chips used in AI applications. Nvidia’s shares are up 15% this week.

Despite the rally, rapid changes in AI has made Coinbase “cautious of bold claims that crypto-focused platforms are uniquely positioned to disrupt the industry,” Han wrote.

AI prices have outperformed the broader crypto market so far in 2024. AI tokens like Akash and Render are up 146% and 99% since the beginning of the year, compared with Bitcoin’s 54% rise. Still, the outlook for most of these projects is uncertain, Han wrote.

Crypto AI products face “an uphill battle against broader market and regulatory forces,” he wrote.

Coinbase says technical challenges associated with decentralised networks — the core concept of crypto-AI projects — will make the battle even more difficult.

AI hype

Han said crypto AI projects have surged because of the hype around AI.

“AI tokens generally benefit from strong associated performance in both the broader crypto market as well as related AI news headlines,” Han wrote.

In recent months, many AI tokens have outperformed AI-related stocks such as Nvidia and Microsoft, Han wrote.

AI tokens can still see gains when Bitcoin prices fall thanks to “memetic speculation,” according to Han.

It happens when speculators bet on a project’s success based on hype rather than on real utility and adoption.

Such speculation may lead to a price correction if the technology doesn’t keep up with the hype, Han wrote.

Headwinds

Han pointed to Akash Network as one AI-related project that faces immediate headwinds.

The project pays users to repurpose their computing power for cloud computing — a decentralised form of the same type of product offered by Amazon or Google. The company likens Akash Network to “Airbnb for data centres.”

Akash has seen increased usage, but potential supply and demand issues have begun to play out, Han wrote.

As more users commit their systems to the network, their fees have been diluted by lack of demand.

Akash and similar projects will likely have to resort to altering the way they structure token distribution, Han said.

As crypto-AI projects try to capture users from entrenched centralised projects like Amazon Web Services or ChatGPT, “nuanced” use cases will win the day, according to Coinbase.

The question remains whether they can provide something new and useful before investors flock elsewhere, Han wrote.

Crypto market movers

• Bitcoin is up around 1% since Wednesday, trading around $67,700.
• Ethereum is flat on the day at $3,880.

What we’re reading

• Wormhole airdrop sparks controversy as some NFT holders miss out on slice of $900m tokens— DL News
• Binance.US Suffered Massive Layoffs And Revenue Loss Following SEC Lawsuit — Milk Road
• BlockFi Settles With FTX and Alameda for $875 Million — Unchained
• Experts see two factors driving Ethereum to $10,000 in catch-up rally with Bitcoin — DL News

Tyler Pearson is a junior markets correspondent at DL News. He is based out of Alberta, Canada. Got a hot tip? Reach out to him at ty@dlnews.com.