The artificial intelligence (AI) token market has experienced a surge in prices that, according to a research report from leading crypto exchange Coinbase, may be driven more by hype than actual utility.
The report, authored by Coinbase research analyst David Han, highlights the stiff competition and technical challenges faced by AI projects, potentially hindering their long-term viability.
Han’s report suggests that the value potential of many AI tokens may be overstated due to the prevailing attention on the AI industry, and that these tokens may lack sustainable demand-side drivers in the short to medium term.
The report questions the bold claims made by crypto-focused platforms asserting their unique disruptive potential within the AI industry.
AI Crypto Market Reaches $26 Billion
The total value of AI crypto projects has already surged to $26 billion this year, with CoinGecko reporting that 37% of these gains occurred in the past week alone, coinciding with a rise in Nvidia’s stock.
Nvidia, a market leader in AI chip technology, has witnessed a 15% increase in its shares this week.
Despite the recent rally, Coinbase remains cautious about the transformative claims made by crypto-focused platforms in the AI space.
The rapid evolution of AI technology has created uncertainty regarding the future outlook of most projects.
Han highlighted the uphill battle faced by crypto AI products against broader market and regulatory forces.
He also pointed out the technical challenges associated with decentralized networks, which form the core concept of crypto AI projects, further complicating their path to success.
“AI tokens generally benefit from strong associated performance in both the broader crypto market as well as related AI news headlines.”
In 2024, AI tokens like Akash and Render have outperformed the overall crypto market, with gains of 146% and 99% respectively, compared to Bitcoin’s 54% increase.
However, Han emphasizes that the future remains uncertain for many of these projects.
Akash Network Faces Headwinds
Han specifically pointed to Akash Network as a project facing immediate headwinds.
The platform incentivizes users to repurpose their computing power for decentralized cloud computing, positioning itself as an “Airbnb for data centers.”
While Akash has witnessed increased usage, issues related to supply and demand have emerged, diluting user fees due to limited demand.
Han suggested that projects like Akash may need to revise their token distribution structures to address these challenges.
As crypto AI projects attempt to attract users from established centralized platforms like Amazon Web Services and ChatGPT, Han suggests that nuanced use cases will be crucial for their success.
The key question remains whether these projects can offer something genuinely new and useful before investors divert their attention elsewhere.
It is worth noting that despite the hype around AI tokens, the memecoin sector has taken center stage in the current crypto market rally.
The memecoin sector as a whole has experienced an 84% surge in the past week.
Notable performers include SHIB, PEPE, BONK, WIF, FLOKI, and POPCAT, which have more than doubled in value, contributing billions of dollars to their market caps.
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