Coinbase Warns About Overhyped Crypto AI Projects
In recent weeks, there has been a major frenzy surrounding Crypto AI projects. However, crypto exchange Coinbase has issued strong warnings stating that the mega rally in several artificial intelligence crypto projects is more of a hype instead of the actual utility.
Crypto AI Projects Encounter Major Hurdles
A report authored by David Han, a research analyst at Coinbase, highlights that these projects face formidable competition and technical obstacles that could significantly impede their progress. Han believes that the value potential for many AI tokens may be overstated due to the broad attention on the AI industry and that sustainable demand side drivers may be lacking in the short to medium term.
Coinbase further asserts that these projects face an uphill battle against broader market and regulatory forces. The technical hurdles associated with decentralized networks, which form the core concept of crypto-AI projects, will further compound the challenge.
Rapid Rise in Value of Crypto AI Projects
The total value of crypto AI projects has surged to $26 billion this year, with about 30% of these gains occurring within the last day. This surge has been driven by the rise in the stock of Nvidia, the leading provider of chips for AI applications, which has seen a 15% increase this week.
Despite this rally, Coinbase remains cautious due to the rapid evolution of AI. The company casts doubt on bold claims that crypto-focused platforms are uniquely positioned to disrupt the industry.
Outperformance of AI Tokens
AI tokens have outperformed the broader crypto market in 2024. For example, tokens like Akash and Render have seen remarkable gains of 146% and 99%, respectively, since the beginning of the year, compared to Bitcoin’s 54% rise. However, Han notes that the outlook for most of these projects remains uncertain.
Hype and Speculation in Crypto AI Projects
Han believes that the surge in crypto AI projects is largely fueled by the hype surrounding AI. He mentions that AI tokens generally experience significant gains alongside the broader crypto market and are often influenced by AI-related news headlines.
Furthermore, Han highlights the phenomenon of “memetic speculation” in which speculators invest in a project based on hype rather than its actual utility and adoption. He cautions that such speculative behavior may result in a price correction if the technology fails to meet the hype.
Challenges Faced by Akash Network
Han specifically mentions Akash Network as a Crypto AI project encountering immediate challenges. The project incentivizes users to utilize their computing power for cloud computing, offering a decentralized alternative to services provided by giants like Amazon or Google.
However, Han notes that potential supply and demand imbalances have started to emerge within Akash Network. As more users contribute their systems to the network, their earnings are diluted due to insufficient demand.
Hot Take: Proceed with Caution
While there has been a major frenzy surrounding Crypto AI projects, Coinbase warns that this hype may not be justified by the actual utility of these projects. The surge in value and outperformance of AI tokens can be attributed to the hype surrounding AI rather than their fundamental value.
Investors should proceed with caution and carefully evaluate the long-term prospects of these projects. The rapid evolution of AI and the challenges faced by Crypto AI projects pose significant hurdles that need to be overcome for sustained success in this space.
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