The convergence of artificial intelligence (AI) and cryptocurrencies has given rise to a new category of crypto tokens, generating billions of dollars in trading. The emergence of AI-driven platforms such as ChatGPT and Bard has brought attention to tokens associated with AI blockchain initiatives.
Kaiko, a data firm, reported that daily trading volumes for major coins such as SingularityNET, Fetch.AI, and Render exceeded $1 billion in early February, marking a two-year peak. AI-based blockchain solutions encompass various services, including payments, trading models, machine-generated non-fungible tokens (NFTs), and AI application marketplaces that utilize cryptocurrency for transactions.
Eric Chen, CEO of decentralized finance platform Injective Labs, said, "This is exciting, it's one of the first times machine-learning applications are being brought on-chain in a big way." However, he warned about the potential for overzealous expectations in the digital asset space.
Investment returns in this space have been strong so far, with the CoinDesk Indices Computing Index, which includes AI-linked tokens, growing 60% this year. The index experienced a significant spike in February, coinciding with a surge in ChatGPT usage.
Although trading volumes receded in March, they remained above the crypto industry's long-term average. Many tokens have outperformed bitcoin, with year-to-date returns ranging from 150% to 780%, according to Dessislava Aubert, an analyst at Kaiko.
The AI-crypto sector, however, remains niche, with CoinGecko's AI-classified coins having a combined market cap of $2.7 billion, a fraction of the overall $1.2 trillion crypto market. Market participants have cautioned that, given the novelty of this space, there may be few winners among the current projects.
Investors are optimistic about the potential of AI-linked crypto applications, hoping to identify projects that solve existing issues, attract more users to blockchain solutions, and yield substantial returns.
Pranav Kanade, portfolio manager at VanEck, said, "Some specific AI projects could actually end up being the 'killer app' for public blockchains." Kanade divides the AI-crypto world into products likely to see near-term adoption as they address current problems and longer-term bets.
Some experts believe decentralized computing networks and blockchain-based marketplaces could help system developers gain market share and enable smaller users to access new AI technology.
Despite the risks, many investors hope that a few outstanding successes will make up for potential losses, said Todd Groth, head of index research at CoinDesk Indices. "You just need a few names that will do quite well."
