Is crypto-AI the investment opportunity of the cycle?

The following is a guest post from Tim Haldorsson, CEO of Lunar Strategy.

Over the first half of this year, one thing has become obvious: AI and crypto are combining to create powerful technologies. By integrating on-chain tools, builders are creating smarter, more secure, and more efficient ways to support AI tasks, verify data, and train AI models. We’re looking at innovation on a scale that can transform entire industries, just like how the Internet has become ubiquitous in modern business.

Between the Bitcoin and Ethereum ETF approvals (and the possibility of a Solana ETF), crypto is now firmly entrenched among traditional investment vehicles. Only one question arises now: what is the defining opportunity for early movers in the biggest bull market ever? This article presents the convergence of crypto and AI as a strong contender.

Synergy Between AI and Blockchain

Developers are naturally drawn to the intersection of AI and blockchain, and it’s easy to see why. These technologies have a natural synergy, with blockchain providing the perfect infrastructure for AI to operate securely, decentralised, and efficiently.

Blockchain technology supports AI in several critical ways, from verifying data to efficiently distributing compute power, and from training AI models to providing end-users with some much needed privacy in an increasingly digitised world. Unlike the previous generation of AI that’s plugged into the internet alone, AI agents on the blockchain can operate on a scalable and secure infrastructure. This gets them closer to performing simple to complex tasks with incredible efficiency and reliability, free from the risks of centralised servers and databases.

Sam Altman, arguably the biggest name in the AI industry, signalled a conviction in the integration of blockchain and artificial intelligence systems with the Worldcoin project. Erik Vorhees, a pioneering crypto entrepreneur, has also veered into the AI space with Morpheus and Venice AI, two projects that probe the mechanics of how we provide and use artificial intelligence in search of fair and open access to all.

And it’s not just builders that believe crypto and AI are growing in lockstep; smart money is in on it too. Pantera Capital, an early investor in Coinbase, Circle and BitStamp, is raising $1 billion for a new fund with sights set exclusively on crypto AI projects.

The Growing AI and Blockchain Market

In the two quarters that have passed since January 2024, the crypto-AI sector has seen a staggering spike in interest, with over $98.8 million pouring in. The valuation of AI tokens is even more impressive, with a total market value of $26 billion. These numbers paint a clear picture of the growth bubbling in this sector.

As it stands, AI-blockchain integrations are projected to add a staggering $20 trillion to the global economy by 2030. And there is no shortage of startups that are capturing the attention of venture capitalists. Projects like Nexus Laboratories and Bittensor already show a strong ability to drive and retain market share.

Nexus Laboratories just concluded a $25 million Series A funding round to continue harnessing the power of blockchain to verify AI data, guaranteeing accuracy and reliability. Bittensor takes a different approach, integrating an entire crypto ecosystem into the process of training AI models. Just like Bitcoin, Bittensor runs a blockchain. The key difference is that instead of relying on energy-intensive mining, Bittensor’s miners validate blocks by completing AI-related tasks.

By completing these tasks, they’re essentially contributing to the training of the AI models. In return, they’re rewarded with incentives, which motivates them to continue honestly validating blocks and supporting the network. Like Nexus, Bittensor has also enjoyed the patronage of VC firms. Its eponymous native token, $TNSR, boasts a market cap of nearly $75 million and is arguably at the forefront of tokenized artificial intelligence ecosystems.

The Smart Money Outlook on Crypto-AI

Investing in projects that merge blockchain and AI can prove to be the most undervalued opportunity for angel investors in the current market. But it’s not enough to simply invest—one must strike while the proverbial iron is hot. If the growth trajectory of crypto AI projects is anything to go by, they are likely to attract more attention from mainstream markets, leading to increased valuations. By being an early mover, angel investors can capitalise on this growth with good asymmetrical returns.

Despite the excitement around all of the opportunities at the nexus of AI and blockchain, we can’t ignore the challenges of doing something brave and new.

For one, this sector is still in its early days, which means while many projects are sound in theory, they are still far from being battle-tested and thus carry a high level of risk. Then there’s the regulatory scrutiny. Governments worldwide are still trying to figure out how to responsibly harness AI, and they are only just warming up to the concept of crypto. We might see fewer innovation-stifling regulations, but that does not mean we are out of the woods yet.

As a final note, it’s crucial to avoid opportunistic entrepreneurs who may lack a clear vision. With ventures built around bleeding-edge ideas, the potential for long-term success is simply a starting point. Investors should seek out companies with strong foundational values that are in alignment with their mission. As always, due diligence is an invaluable tool for investors eyeing the crypto-AI sector, so make sure to do your own research!

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