AI Crypto Tokens Like Render, WorldCoin Are ‘Overvalued’: Coinbase Research
08 März 2024 - 1:24PM
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In their report, “Crypto’s AI Mirage,” Coinbase Research has issued
a nuanced examination of the intersection between artificial
intelligence (AI) and crypto, revealing a landscape fraught with
overvaluation and speculative fervor. David Han, an Institutional
Research Analyst at Coinbase, spearheads this analysis, providing a
critical lens through which the future of AI crypto tokens is
scrutinized. AI Crypto Tokens Lack ‘Persistent Demand Drivers’ At
the heart of the report is the assertion that the crypto-AI domain,
despite its rapid expansion and the enthrallment it enjoys from
investors and the public alike, confronts substantial obstacles
that might thwart its adoption in the foreseeable future. “AI
tokens have been buoyed by the broader crypto and AI markets but
may lack persistent demand drivers in the short to medium term,”
Han states, underscoring the precarious foundation on which these
tokens’ valuations might rest. One of the report’s pivotal insights
is the critique of decentralization as a standalone merit for AI
products within the crypto sphere. “We generally think that
decentralization is an insufficient competitive advantage for an AI
product on its own – it must reach feature parity with centralized
counterparts in certain other key areas as well,” the report
elaborates. This perspective challenges the prevailing narrative
that decentralization inherently confers superiority, arguing
instead for a balanced approach that considers other critical
factors for success. Related Reading: Fetch.AI (FET) Price Gains
Another 15% Following This Big News The analysis further
articulates a “contrarian view” on the value potential of many AI
tokens, suggesting that the market’s exuberance may be misaligned
with the actual prospects of these ventures. “Our view is that the
value potential for many AI tokens may be overstated… and that many
AI tokens may lack sustainable demand side drivers in the short to
medium term,” Han explains. This cautionary stance is informed by
the rapid evolution of AI technology, which poses a double-edged
sword—while advancing the field, it also raises the barrier for
crypto-based innovations to disrupt existing markets. Delving into
the categorization of AI and crypto intersections, the report
differentiates between AI applications that enhance the crypto
industry and those aimed at disrupting traditional AI pipelines
through decentralized methods. It acknowledges the clear benefits
and potential for long-term promise in the former category. In
contrast, it casts doubt on the latter’s value proposition,
highlighting the formidable challenges posed by market competition
and regulatory hurdles. Just Speculative Gambles? Despite these
challenges, the report notes a paradox where AI tokens have
outperformed benchmarks such as bitcoin, ether, and even major AI
equities like Nvidia and Microsoft since the fourth quarter of
2023. “AI tokens generally benefit from strong associated
performance in both the broader crypto market as well as related AI
news headlines,” the report observes, suggesting that these tokens
can act as proxies for AI progress, albeit potentially detached
from their actual utility or adoption metrics. However, the
speculative nature of this market is not lost on Coinbase Research,
which warns of the risks associated with memetic speculation absent
clear adoption forecasts. “A lack of clear adoption forecasting and
metrics have enabled a wide range of memetic speculation which may
not be long-term sustainable,” Han remarks, highlighting the
precarious balance between price and utility in the AI token
market. Related Reading: Crypto Analyst Unveils Top AI Trend And
Coins This Bull Run In its concluding remarks, the report
emphasizes the need for a judicious approach to navigating the
crypto-AI landscape. It cautions against overreliance on
decentralization as a panacea and advocates for a realistic
appraisal of the challenges and opportunities that lie ahead.
“Crypto’s role in AI does not exist in a vacuum… Thus, supplanting
centralized providers purely for the sake of ‘decentralization’ is
insufficient,” the report concludes, advocating for a more nuanced
and critical examination of how crypto can genuinely contribute to
the AI domain. Render And WorldCoin Under The Microscope WorldCoin
emerges as a case study in the report, illustrating how AI tokens’
valuations can be significantly influenced by market headlines and
promotional activities, often detached from tangible developments
within the project itself. “The fully diluted valuation of
Worldcoin sits at $80B – similar to that of OpenAI’s $86B February
16 valuation…,” Han notes, pointing to the speculative dynamics
that can inflate valuations irrespective of underlying
fundamentals. He details that WorldCoin is perhaps the clearest
example of AI tokens tracking AI market headlines. “It released its
World ID 2.0 upgrade on December 13, 2023 that went mostly
unnoticed, yet made a 50% move upwards following Sam Altman’s
promotion of Worldcoin on December 15,” Han remarked, adding that
“OpenAI’s Sora release on February 15, 2024 led to a nearly
threefold gain in price despite no related announcements on
Worldcoin’s Twitter or blog.” Regarding Render Network (RNDR), Han
highlights that the decentralized computing (DeComp) sector of the
crypto economy is meant to be an alternative to the centralized
cloud computing model. He argues that crypto projects such as
Render and Akash have benefited from the GPU supply crunch.
However, he questions the long-term viability: For networks [like
Render and Akash] where compute pricing can change based on supply
and demand variations, it is unclear to us where persistent,
usage-driven demand to native tokens will ultimately arise if
supply-side growth outpaces that on the demand side. We think it’s
likely that such tokenomic models may need to be revisited in the
future. At press time, RNDR traded at $9.925. Featured image from
iStock, chart from tradingView.com
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