AI and Crypto: Bubble or Future?

Cryptocurrency projects linked to artificial intelligence may face setbacks due to a potential “bubble burst” in the sector, experts have suggested.

A growing group of Wall Street analysts is concerned about the massive investments in AI, which could lead to a financial bubble. The technology may not generate enough profit to justify the billions invested.

Debates within the industry focus on the necessity of capital expenditure on generative AI and whether monetization will align with these costs, noted Morgan Stanley analyst Keith Weiss.

These concerns raise questions about the sustainability of AI-related crypto projects. According to Mirza Uddin, head of business development at DeFi platform Injective, many lack a solid foundation.

He stated that AI in cryptocurrency is “largely a trend tied to the dynamics of big tech stocks like Nvidia,” although there has been little real application of neural networks in the crypto sphere.

In June, the company briefly became the most valuable in the world with a market cap of $3.34 trillion. Its market value surge was driven by the boom in generative artificial intelligence and the growing demand for AI chips. Nvidia’s shares have risen by more than 170% this year and about 1100% from their low in October 2022.

Uddin noted that some developers are genuinely trying to create real AI applications, but their share is unlikely to exceed 5%.

“Most ‘AI applications’ in cryptocurrency today are little more than simple shells for ChatGPT or ambitious white papers that are unlikely to lead to real products in the coming years,” he said.

CEO of analytics firm Blockcircle Basel Ismail emphasized that most AI-related projects in the crypto sphere misuse terminology for their own financial gain. However, there are several startups genuinely innovating and potentially becoming industry giants.

“Projects with fundamental infrastructure and a well-established vision in AI will thrive and gain long-term advantages beyond the bubble,” noted Edge & Node CEO Tegan Kline.

Potential Collapse of Crypto-AI

If the bubble bursts, Ismail expects “significant collateral damage” to AI markets. In such a scenario, only projects with substantial financial backing, which few possess, will survive the “winter.”

Securing small investments in seed or Series A rounds is “insufficient for developing meaningful, sustainable use cases in the long term,” he noted.

The CEO of Blockcircle added that developers with genuinely good intentions can survive and attract new investments regardless of the situation in the AI sector, as the technology itself, when applied correctly, can enhance processes in various areas.

Kline noted that besides investments, other important factors include access to reliable, decentralized, and fresh data.

The Potential of Crypto-AI

The synergy between artificial intelligence and the crypto sphere could have a profound impact on the world, Ismail noted. He cited AI-driven automated trading, which could elevate the DeFi sector to a new level, and blockchain tokenization managed by neural networks without human intervention.

“The possibilities for real AI applications in cryptocurrencies, beyond the current trend, are truly limitless,” he added.

Back in July, hedge fund Elliott Management considered Nvidia to be “in a bubble,” with the AI technology defining the company’s stock price “overvalued.”

According to Bitwise, by 2030, the global GDP will increase by $20 trillion due to the digital asset and artificial intelligence industries.