AI cryptos have performed great since ChatGPT saw a sudden popularity explosion in December last year. Here is why AI cryptos are a promising investment opportunity and what can you expect from them in the future.
What are AI Cryptos?
AI cryptos are relatively new crypto projects that try to merge artificial intelligence with blockchain technology. Areas of application are very diverse and range from finance to the gaming sector. The extent to which the respective projects rely on artificial intelligence also varies greatly.
How is Artificial Intelligence Improving Cryptocurrencies?
In general, AI makes existing processes more efficient. Some examples:
- Automation: Many large and small processes can be simplified and accelerated with AI in the future. This ranges from analyzing which cryptos are a good investment opportunity to automatically compiling data.
- Fraud detection: Artificial intelligence can recognize conspicuous patterns that warn users, for example, of suspicious wallet addresses or a high probability of scams with certain crypto projects.
- Autonomous processes: Smart contracts allow the execution of complex processes on blockchains. Thanks to AI, this could be taken to a new level in the future. For example, when smart contracts are automatically adapted or newly created on the basis of certain specifications.
- User experience: Artificial intelligence can recognize behavior and usage patterns and offer or optimize certain functions and services on this basis. An example is the automatic and correct filling of transaction forms.
What are the Disadvantages of Artificial Intelligence in Crypto?
AI is powerful but comes with various downsides.
- Data vacuum cleaner: Artificial intelligence is based on vast amounts of data. Users have to release a lot of sensitive personal and financial information to the algorithm. We know from experience that this data is not always used to the benefit of users.
- Mistakes can happen: AI is based on programming. And this can contain mistakes. A lot has happened in the field of artificial intelligence in recent years. However, the technology is not yet fully mature. Thus, various risks remain when using it.
- Dependency increases: If you hand over the execution of certain processes to an automatic helper, you make yourself dependent on it.
What are the Best AI Crypto Projects?
It is difficult to make an objective assessment of crypto projects using AI. Here are 5 examples of projects that use artificial intelligence for different purposes:
- SingularityNET enables developers to publish their services on a decentralized platform. Developers can earn the native AGIX token.
- Fetch is creating AI platforms and services to let anyone build and deploy AI services at scale.
- Ocean Protocol allows anyone to publish, discover and consume data in a decentralized fashion.
- iExec RLC aims to create a decentralized marketplace for computing assets such as computing power, applications, datasets, etc.
- Numerai is building a decentralized data science platform on Ethereum that allows developers to compete in creating effective machine learning prediction models.
How Many AI Crypto Projects are There?
There are currently at least about 60 cryptocurrencies that somehow make use of artificial intelligence. Given the current popularity of AI, it is likely that many more crypto projects utilizing this technology are in active development.
AI Cryptos Investment Potentials in the Current Crypto Market
The largest AI cryptos by market cap have outperformed Bitcoin in the last 30 days. Yet they are still down 80–90% from their respective all-time highs.
A lot of the uptrend we see is based on the current hype and the general trend reversal in the crypto market. A lot of investors want to catch the early train which we can see when looking at the top 10 best-performers ranked by 30-day price-performance:
Among the 10 best-performing AI cryptos, 6 of them have a market cap of only a few million USD, and 1 of them has only a market cap of $400K. So there is a lot of growth potential here. However, a low market cap also means that the price is easy to manipulate. In other words, a few whales can make the price go up or down significantly.
Investment Opportunities
The whole AI-related crypto sector is still very small. As we can see, the market cap of the biggest AI crypto project is just above 200 million, in the overall cryptocurrency ranking, it barely makes into the top 100. This means that investments at this stage have big future potential.
However, you should be careful.
What Can We Learn From Past Crypto Hypes?
During the ICO hype in 2017–18, many people made fortunes. But when we look at what became of these projects then we see that a large majority of them failed.
According to an analysis I did, the average ICO lost about 80% in value within a year after public listing.
We could see the same pattern playing out during and after the DeFi hype in 2020–22 and the NFT hype in 2021–22. While some solid projects such as Uniswap, AAVE, and Bored Ape Yacht Club ran to and stayed at the top, a lot of other projects vanished into insignificance.
I believe that AI cryptos will perform similarly.
Is it a Good Time to Buy AI Cryptos Now?
Most cryptocurrencies’ price actions are still closely correlated with Bitcoin. I believe that Bitcoin has bottomed. But due to the recent rally, it will probably have a correction. Rather than chasing the highs, it is better to wait for a price correction.
During the coming bull market, AI cryptos will ride on a wave of euphoria and show great returns. But once that wave breaks, only a few projects will show lasting returns. The rest will become worthless.
This means that when you decide to buy into an AI crypto project, make sure to set profit targets and sell on time. Do not HODL for too long. Keep some cash, and re-invest in projects which survive the hype.
Final Thoughts
Like DeFi and NFTs, projects that combine artificial intelligence with blockchain technology bring new value to the market.
There is definitely potential in AI cryptos. But we will have to wait and see until we can figure out which use cases are here to stay.
Other challenges remain.
Though crypto has gained a lot of adoption over the last few years, it is still a relatively small space. Many people yet struggle to understand the concepts such as decentralization, blockchain, DAO, trustlessness, etc. The term AI is also very technical and difficult for regular people to understand. So don’t expect that mass adoption is just around the corner.
Disclaimer: Nothing in this article should be used as financial or investment advice!
https://ren-heinrich.medium.com/ai-cryptos-are-the-next-big-thing-f3e654accc66
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