Coinbase Analysis Signals Risks in Evolving Crypto-AI Sector

By Jody McDonald March 11, 2024 In AI, Coinbase, Cryptocurrency
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  • A report from Coinbase has questioned the utility of many AI-related crypto projects, suggesting that hype, rather than meaningful innovation, is driving price action.
  • The report also identified opportunities where AI and crypto could work together, mainly use cases in which AI could be used to improve crypto.
  • Despite the concerns raised in the report, the prices of many AI-related crypto projects have surged in the past month, often outperforming Bitcoin.

A report published by Coinbase last week has questioned the short-to-medium-term prospects of artificial intelligence (AI) based crypto projects, suggesting the recent huge price growth of many AI-related cryptocurrencies is due mainly to hype rather than meaningful use cases.

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Even with this lack of clear utility, the prices of AI crypto projects have skyrocketed recently — with many outperforming Bitcoin by over five times during the last month, even while Bitcoin itself has been on a price tear.

Report Urges Caution Around AI Crypto

Despite the enormous growth in AI in the past few years, the report’s author, Coinbase Research Analyst, David Han, urged caution around AI-related crypto projects. Han highlighted some fundamental technological issues— particularly the conflict between crypto’s decentralised nature and the centralised architecture of most AI systems. 


The report also questioned the “bold claims” made by many AI crypto projects that they’re “uniquely positioned to disrupt the industry”, suggesting that the rapid changes in AI mean these claims should be viewed with scepticism.

Han also emphasised that because the AI field is itself still quite new and rapidly evolving, at this point it isn’t obvious that it would actually benefit from the decentralisation offered by crypto:

The often touted blanket remedy that “decentralization fixes [insert problem]” as a foregone conclusion is, in our view, premature for such a rapidly innovating field.

David Han, Coinbase Research Analyst

Report Identifies AI Crypto Opportunities

In addition to pointing out the flaws in AI crypto, the report identified some opportunities to use AI to improve the crypto industry, such as:

  • Creating human readable transactions;
  • Improving on-chain data analytics; and
  • Using AI-generated content on-chain.

The report was less enthusiastic about the prospects of crypto disrupting the AI industry though, saying that challenges facing these use cases “supersede technical ones (which we think are generally solvable in the long term) and are an uphill battle against broader market and regulatory forces.”

Han also pointed out that most of the AI crypto projects currently being developed fall into the latter, less likely to succeed category, typically taking a model which uses liquid tokens.

AI Tokens Boom Despite Questionable Prospects

Despite the potentially poor prospects of many AI crypto projects, the AI sector of the crypto market has been booming, with many high profile AI tokens outperforming Bitcoin (itself up 43.9%) over the past month, according to CoinGecko data:

  • The Graph (up 150.7%)
  • Render (up 135.1%)
  • Fetch AI (up 350.4%)
  • SingularityNET (up 316.5%)
  • Ocean Protocol (up 170.7%)
  • PAAL AI (up 424.5%)

Related: ‘Rich Dad, Poor Dad’ Author: Don’t Wait to Invest in Bitcoin

In the long term, Han believes the price of AI crypto projects will match their utility — however, as with the broader crypto market, it’s not clear when this will happen and until it does it’s possible hype will continue to drive price action:

We do think that a continued constructive crypto market and outperforming AI sector could sustain a strong crypto-AI narrative for some time.

David Han, Coinbase Research Analyst

Jody McDonald

Jody McDonald

Jody is a Brisbane-based freelance writer who specialises in writing about business, technology, and the future of work.

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