Dubai: If you’re an investor who sees yourself as being savvy, you would be keen to follow any new up-and-coming trends and invest in compelling narratives that earn you an early bird advantage in the form of potential profits in the future.
“When investors together shift their money from an existing trend to a new trend, one market goes up and another goes down. This is what is happening to the once hot crypto and the now popular Artificial Intelligence (AI),” explained Brian Deshell, a UAE-based cryptocurrency trader and analyst.
“When it comes to how markets react to hypes, interestingly, historical chart data indicates that much like crypto, AI has gone through ‘booms and busts’, which is a recurring period when investor enthusiasm drives up market growth and is then later followed by a period of consistent declines.”
When it comes to market investments, the oil market has had periods of ‘booms and busts’ since 1861. In the gold industry, ‘boom and bust cycles’ last an average of 10 years.
The dot-com ‘boom and bust’ lasted from 1995 to 2000 when investors pumped money into Internet-based startups, and for cryptocurrencies, prices have boomed and busted repeatedly since 2017.
How AI-, crypto-driven market hypes played out in the past
“The hype we’re hearing around Artificial Intelligence (AI) now is reminiscent of the hype we heard around cryptocurrencies and blockchain years ago,” wrote Noelle Acheson, the former head of research at crypto publisher CoinDesk and exchange Genesis Trading, in her newsletter.
The current AI hype is due to a boom in machine learning — when you train an algorithm on huge datasets so that it works out rules for itself, as opposed to the back when rules had to be hand-coded. The AI boom now is driven by ChatGPT, a chatbot released in 2022, and AI art generators.
But how does such AI and crypto ‘boom and bust cycles’ affect the future value of your investments? Like most other investments like real estate, gold or oil, the future value of cryptocurrencies and AI will boil down to the science behind the investments, not how the hype make them out to be.
“The real-world impact of crypto and blockchain will continue to evolve; it’s just not what some tried to sell the public in the early days. The same will happen with AI – the impact will be considerable, but the hype will always outrun real-world uses,” Acheson further noted.
Investors are now shifting their money from crypto to AI
“Artificial Intelligence is the shiny new thing wealthy investors or venture capitalists are throwing money at – leaving once red-hot crypto projects flailing for funding,” added Deshell.
“In November 2022, just as embattled crypto exchange FTX collapsed and crypto winter reached a trough, the release of ChatGPT suddenly energised the world of AI. Naturally, it captured the imagination of the investment world. The excitement blew up.”
The global annual value of AI investments from wealthy investors or venture capitalists (VCs) has grown dramatically, from less than $3 billion (Dh11 billion) in 2012 to close to $75 billion (Dh275 billion) in 2020. Investments increased 20 per cent last year alone. But this has hurt crypto.
Evan Cheng, founder of US-based crypto and blockchain infrastructure technology Mysten Labs, had recently flagged that the recent surge in AI-related investments has negatively impacted funding that goes into crypto investments, with AI startups now receiving crypto’s share of VC money.
The hype we’re hearing around Artificial Intelligence (AI) now is reminiscent of the hype we heard around cryptocurrencies and blockchain years ago
Key takeaways
AI is attracting an incredible amount of attention through its increasing relevance to our everyday lives. As AI’s capabilities continue to expand, as indicated by latest trends, investors are trying to determine the best ways to capitalise on this key growth industry.
“While a logical move for investors with existing holdings in cryptocurrencies is to shift their investments to a similarly nascent industry like AI, there is no need to panic when you see one market decline and another rise – it’s all cyclical in markets,” added Deshell.
“As history indicates, wider investor interest will keep changing with either AI or crypto. The key takeaway for any experienced investor is to disregard the wavering interest and focus their investments on the science behind the industry, which is what will keep it moving forward.”
Also, experts advise that instead of backing hot start-ups or rushing into highly valued AI-themed businesses that might fail, back already proven technology companies that might benefit from the longer-term trend. However, bear in mind that it is still very early to narrow down on the use cases for AI.
