Coinbase analyst reveals: are AI tokens overhyped and offering less value?

Although some AI-based crypto tokens show profit for now, the system’s durability will require more than just spreading out AI parts.

As experts investigate the potential uses of artificial intelligence (AI) across various fields, a report by Coinbase is casting doubt. The report suggests that the current enthusiasm around AI-related tokens may be more talk than real value, especially in the short to mid-range term.

Challenges and potential in crypto AI evolution

Generative AI has boosted the growth of specialized crypto groups in recent years. But Coinbase research analyst David Han warns that the quick evolution of AI could threaten the lasting success of many AI tokens.

According to Han, the main problem with crypto AI projects is the conflict between their nature. While crypto projects typically focus on spreading control, current AI solutions depend mainly on centralized elements and data sources.

Furthermore, many projects in this area have struggled to attract investors, leading to a shortage in funding allocation.

The report underscores two potent avenues within the crypto AI ecosystem – enhancing blockchain data for crafting human-readable transactions and analysis and aiding in decentralizing a centralized AI infrastructure today. Nonetheless, Han points out that it isn’t sure that a decentralized AI future envisaged by many in the crypto industry will come to fruition. He asserts that the future trajectory of the AI industry at large remains significantly ambiguous.

AI tokens outperforming, yet face uncertain future

Even though the outlook is pessimistic, many AI tokens have been doing better than Bitcoin and big-name stocks like Nvidia and Microsoft. According to Coinbase, this is mainly due to the hype created by the broader crypto market, fueled by AI-related news.

While the crypto AI industry continues to flourish in a supportive crypto market, Coinbase believes gaining substantial acceptance will need more than just decentralizing certain AI elements.

It’s crucial to realize that the AI sector is still emerging and needs to grasp the fundamental trading dynamics, ultimately offering a suitable alternative to current crypto assets.

Coinbase believes that significant advances in AI technology related to cryptocurrency are necessary. Likewise, Ethereum’s co-founder, Vitalik Buterin, has said that AI could play a key role in finding and eliminating deep-seated bugs in its code.

On February 19, Buterin expressed his enthusiasm for AI-assisted auditing. He believes it can spot and correct faulty code in the Ethereum network, which he labels the “highest technical risk.”

Market influence on AI tokens exemplified by WorldCoin

The report uses WorldCoin as an example to show how market news and promotional activities can significantly influence the value of AI tokens, often disregarding real progress within the project itself. Han points out, “Worldcoin’s total potential value sits at $80B—equal to OpenAI’s $86B valuation on February 16…” highlighting how speculation can increase values irrespective of actual fundamentals.

He illustrated his point with WorldCoin as the clearest example of AI tokens reflecting AI market headlines and discussed how the release of the World ID 2.0 upgrade on December 13, 2023, went largely unnoticed. Yet, the token experienced a 50% price increase after Sam Altman promoted Worldcoin on December 15. Moreover, he pointed out that the launch of OpenAI’s Sora on February 15, 2024, led to a nearly threefold price gain despite the lack of relevant announcements on Worldcoin’s Twitter or their blog.

Speaking about the Render Network (RNDR), Han explains that this area of the crypto economy aims to offer a different choice from the standard centralized cloud computing model. He contends that crypto endeavors like Render and Akash have gotten boosted due to the scarcity of GPU supply.

According to Crypto.com figures, AI tokens had a combined market value of $51.18 billion as of March 8. Essentially, these tokens fund projects, applications, and services that use AI. They back everything from AI marketplaces that aren’t controlled by any single entity to AI-designed trading methods and autonomous organizations.