Coinbase Warns Against the Recent Rally In Crypto AI Projects

Amid the major frenzy surrounding the Crypto AI projects in recent weeks, 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 Face Major Hurdles

According to a report authored by David Han, a research analyst at Coinbase, the projects encounter formidable competition and technical obstacles that could significantly impede their progress. Han wrote:

“Our contrarian view is that the value potential for many AI tokens may be overstated as a result of broad attention on the AI industry, and that many AI tokens may lack sustainable demand side drivers in the short to medium term”.

He further added that Crypto AI products face “an uphill battle against broader market and regulatory forces”. Coinbase asserts that the technical hurdles linked with decentralized networks, which constitute the core concept of crypto-AI projects, will further compound the challenge.

According to data CoinGecko, the total value of crypto AI projects has surged to $26 billion this year. Notably, about 30% of these gains occurred within the last day, driven by another rise in the stock of Nvidia, the leading provider of chips for AI applications. Nvidia’s shares have increased by 15% this week.

Despite this rally, Coinbase remains cautious due to the rapid evolution of AI, casting doubt on bold claims that crypto-focused platforms are uniquely positioned to disrupt the industry, as stated by Han.

AI prices have outperformed the broader crypto market in 2024. 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.

AI Hype and Headwinds Ahead

Han noted that the surge in crypto AI projects is largely fueled by the hype surrounding AI. He wrote, “AI tokens generally experience significant gains alongside the broader crypto market and are often influenced by AI-related news headlines.”

According to Han, in recent months, numerous Crypto AI tokens have outperformed AI-related stocks like Nvidia and Microsoft. Han also mentioned that AI tokens can still see increases in value even when Bitcoin prices decline, owing to what he termed as “memetic speculation.”

This phenomenon occurs when speculators invest in a project based on hype rather than its actual utility and adoption. Han cautioned that such speculative behavior may result in a price correction if the technology fails to meet the hype.

Han highlighted 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. Akash Network describes itself as the “Airbnb for data centers.”

While Akash has observed heightened usage, Han noted that potential supply and demand imbalances have started to emerge. As more users contribute their systems to the network, their earnings stand \ diluted due to insufficient demand.