AI tokens are more hype than value right now, says Coinbase analyst

While some crypto-AI tokens continue to deliver profitable trades, the long-term sustainability of the ecosystem will require more than just decentralizing AI components.

While technologists continue to explore artificial intelligence (AI) use cases in all business verticals, a Coinbase research report suggests that AI-related tokens may be over-hyped right now, at least in the short and medium term. 

The rising popularity of generative AI spurred niche crypto sub-ecosystems over the last couple of years. However, Coinbase research analyst David Han believes that the rapid changes in AI “make us cautious” of the long-term sustainability of most AI tokens.

One of the primary challenges with crypto-AI projects lies within the core of both technologies. While crypto projects often aim for decentralization, the current AI offering relies heavily on centralized components and data sources, argues Han.

In addition, most projects in the niche have failed to attract investors — resulting in under-indexed capital allocation.

The report highlights two opportunities for the crypto-AI ecosystem — improving the blockchain data for creating human-readable transactions and analysis and helping decentralize the predominantly centralized AI infrastructure. However, Han said:

“A decentralized AI future, as it is currently envisioned by many in the crypto industry, is not guaranteed – in fact, the future of the AI industry itself is still largely undetermined.”

Despite the negative outlook, many AI tokens recently outperformed Bitcoin (BTC) and major stocks such as Nvidia and Microsoft. Coinbase attributed this to the market sentiment built by the broader crypto market and supported by related AI news headlines.

The crypto-AI narrative could grow even stronger amid the continued constructive crypto market and the outperforming AI sector. However, Coinbase suggests that driving ‘meaningful adoption’ will require more than just decentralizing AI components.

“A decentralized AI future, as it is currently envisioned by many in the crypto industry, is not guaranteed – in fact, the future of the AI industry itself is still largely undetermined.”

It is important to note that the AI ecosystem is currently in its nascency and will have to “understand the underlying trading narrative” at the very least, eventually providing a comparable alternative to today’s crypto assets.

Related: Coinbase shares climb after-hours as exchange fixes site jitters

Complimenting Coinbase’s suggestion for meaningful developments in the crypto-AI sphere, Ethereum co-founder Vitalik Buterin recently said AI could be crucial to eradicating bugs buried deep within its code.

On Feb. 19, Buterin shared his excitement for AI-powered auditing to identify and fix buggy code in the Ethereum network, describing it as the “biggest technical risk” to the network.

AI tokens cumulatively hold a market capitalization of $51.18 billion as of March 8, according to Crypto.com data. These tokens serve AI-based projects, applications, and services, such as decentralized AI marketplaces, AI-powered trading algorithms and AI-driven decentralized autonomous organizations, to name a few.