Some AI crypto projects are maturing, with AI tokens like Bittensor (TAO), SingularityNet (AGIX) and LayerAI (LAI) showing major developments and early signs of recovery.
The crypto AI sector witnessed an explosive surge at the start of the year.
However, AI tokens have since suffered through months of drawdown as attention shifted to other narratives.
But are we finally seeing early signs of recovery in crypto AI tokens?
Meanwhile, 2024 has been an impressive year for many US stock indices, with the S&P 500 and Dow Jones Industrial Average (DJI) breaking all-time highs.
In today’s piece, we dive into the details and find out what’s going on.
Let’s find out!
TL;DR:
- TradFi balls, Crypto falls: S&P 500 up 18.2% YTD, DJI up 8.4%. Nvidia's 169.9% surge fuels the rally, while crypto AI tokens struggle amid a broader market downturn.
- Retail takes a hit: Despite bullish indicators, meme coins and thin liquidity are wiping out new investors, with AI scams rampant on platforms like Telegram and Discord.
- Hope on the horizon: Bittensor and early AI crypto projects are maturing, with some AI tokens like SingularityNet (AGIX) and LayerAI (LAI) showing signs of recovery.
- Potential shift coming: AI could boost Bitcoin mining profits, but IMF’s proposed energy taxes might slow growth. Still, the tide might be turning.
Indeed, the S&P 500 is up a staggering 18.2% YTD whereas the DJI has clocked in an impressive 8.4% in the same period.
Much of this growth was driven by the performance of AI sector leader NVIDIA, which is up 169.9% this year alone, becoming the second-largest company by market capitalization.
How does the crypto market fare in comparison? Let’s find out.
TradFi Rallies, Crypto Relapses
Gold spot hit its highest-ever value at the end of last week, trading at over $2,500/oz for the first time in history. The same is reflected in the value of gold-backed stablecoins, including Tether Gold (XAUt) and PAX Gold (PAXG) — which hit their all-time highest values on August 20, 2024.
Learn about yield-bearing stablecoins here.
But the same can’t be said for the crypto AI sector. Despite a strong start this year, the sector hasn’t been able to avoid the broader downturn suffered by the broader crypto industry.
Currently, 6 of the top 10 largest AI tokens are in the green YTD, with AOIZ Network currently standing as the sector leading (up 176% in 2024).
What’s Going On?
Let’s face it, the current market conditions were unexpected by many cryptocurrency traders.
With many fundamental and technical indicators suggesting that we should be squarely in the midst of a euphoric bull market, traders are understandably unimpressed.
The Bitcoin Rainbow Chart, for example, suggests we're in strong BUY territory, whereas the stock-to-flow model suggests Bitcoin should be trading at over $180,000 already.
So what’s going on?
Well, the fact is we may very well be in a bull run — the most retail extractive bull run in history. Given that the space is dominated by meme coins, many of which go caput within days of launch, new retail investors are being washed out faster than ever.
Likewise, the sheer rate of new token launches has led to thinly spread liquidity, making it difficult for new projects to gain momentum while leaving even prominent projects prone to dramatic price swings.
A quick search of the term "AI" on DEXTools reveals well over 30,000 AI-centric tokens currently exist — with the vast majority associated with BNB Chain and Ethereum. The vast majority of these have essentially no liquidity or trading volume.
Moreover, AI has increasingly been used to scam and otherwise defraud would-be crypto investors through platforms like Telegram, X, and Discord — where deepfakes and bots target a large chunk of users.
It’s not just retail struggling in this market either, even the big crypto VCs are generally having a tough time in 2024.
As per data from this Dune Dashboard, 9 of the top 10 VC funds might also be in the red in 2024 based on the performance of their investments.
Unfortunately, these factors may have stunted the growth of the industry, making it difficult for investors to see the true value proposition of some projects.
Fundamental Growth
It’s not all doom and gloom. There are several reasons to be optimistic about the future of the crypto AI sector.
For one, some of the early crypto AI movers are beginning to mature, bringing with them potentially game-changing products that can renew hope in the industry.
Chief among these is Bittensor — the decentralized network that enables the deployment of specialized AI services as subnets.
Per Taostats, at least 45 subnets are currently in operation, some of which are gaining significant adoption and proving the capabilities of decentralized AI systems.
Click here to learn how to use ChatGPT for your crypto research.
For example, subnet 8 allows users to access algorithmic trading signals and benefit from the collective intelligence of top traders, who are in turn provided financial incentives for creating successful strategies. Whereas, subnet 21 provides an open-source llama-3-based AI that can be used for various tasks.
There are also early signs that some AI tokens are beginning to see a trend reversal. This includes SingularityNet (AGIX) and LayerAI (LAI) — which recorded a 6% and 8.3% gain today alone. Meanwhile, both tokens saw significant CEX outflows today, indicating a shift toward a buy-and-hold mentality.
Indeed, all 10 of the top 10 largest AI tokens by market cap are now in the green — with Artificial Super Intelligence (ASI) leading the way with a 10.5% gain.
Moreover, there are indications that a big shift might be about to take place. According to a recent report by VanEck, publicly-traded Bitcoin mining companies could net additional yearly profits of $13.9 billion over the next 13 years — just by switching 20% of their mining capacity to AI and high-performance computing revenue streams.
But the International Monetary Fund (IMF) might present an obstacle to this. Per an August 15 report, the IMF suggests a significant increase in energy taxes for crypto miners and AI data centers — possibly hindering the growth of these sectors.
Nonetheless, things seem to be taking a turn for the better, despite the otherwise choppy market conditions.
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