Crypto Crowd Plunges into AI, Possible Sign of a Bubble

by Arthur · February 9, 2023

Investors have worked themselves into a frenzy over opportunities in artificial intelligence. You can see the froth reaching peak levels because crypto bros are piling in with big bets on small and speculative AI-related cryptocurrencies.

The public debut late last year of OpenAI’s chatbot ChatGPT spurred intense popular interest in the sector, as well as an AI arms race. Microsoft (ticker: MSFT ), which backed OpenAI, is looking to use it to shake up the web search market, while Google parent Alphabet ( GOOGL ) and Chinese tech giant Baidu ( BIDU ) are launching their own chatbots soon.

While these three companies may be positioned as the key players — alongside the likes of International Business Machines ( IBM ) and AI-exposed chip makers like Nvidia ( NVDA ) — investors are looking for smaller AI names that could deliver bigger returns. As Barron’s have noted, you have to think that this feeding frenzy is not going to end well.

Not to be outdone, the crypto brothers follow suit. In the midst of a major rally in digital assets to start the year—with

Bitcoin

up 40% in a matter of weeks and many smaller cryptos, or altcoins, are seeing massive peaks – those tied to AI are outperforming.

A sector index of 73 AI-linked cryptos compiled by data group CryptoSlate has risen a remarkable 87% in just the past seven days, with some individual tokens posting even more eye-popping returns.

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Singularity NET, which facilitates the monetization of AI services on the blockchain, is up 675% since the start of the year. Artificial Liquid Intelligence, which registers property rights for blockchain AI assets, has risen 500% in the same period. Fetch.ai has gained more than 200% since the beginning of 2023, an endorsement of the ecosystem’s mission to build a decentralized machine learning network.

Brimming with AI buzzwords, the descriptions of all three of these cryptos — which now have a combined market capitalization of over $1.3 billion — make it understandable why investors would pile in amid the tech hype.

Crypto is known for its bubbles, and this AI-powered rally has all the screaming qualities of one. But really, how different is the speculative crypto wave from the one gripping the stock market, where names like C3.ai (AI), BigBear (BBAI) and SoundHound (SOUN) have pulled higher?

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Crypto tokens may be even more speculative than AI stocks with smaller companies – but the explosion of both bets suggests the same frenzy. Investors beware.

Write to Jack Denton at [email protected]