Artificial intelligence is making hay during the cryptocurrency winter

It’s not just nature that’s red in its teeth and claws; the technology is too. And when it comes to cryptocurrency, the disruptor is now being disrupted by the sprint towards artificial intelligence.

While some virtual currencies have bounced back this year, many such as Bitcoin and Ethereum are still more than 60% down from their record highs, reached in November 2021.

Perhaps it’s little surprise then that interest has waned as well. DataTrek co-founder Nicholas Colas analyzes data from venture capital firm Andreessen Horowitz that tracks intellectual capital interest in various areas and found that cryptocurrency price, academic activity, and development in the space also they are in decline.

According to the data, the number of developers active in virtual currencies has dropped by a third from its peak in early 2022; similarly the number of affected developers, defined as those who interact with open source code related to virtual currencies, is 27% lower than its maximum.

Worldwide interest in cryptocurrency-related job searches has halved since its peak in January 2022, and the number of published academic papers on the subject has dropped nearly as much.

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Even more concerning is the fact that all of these trends have not yet stabilized, Colas writes, suggesting they could fall even further, as more programming talent and academic attention turns elsewhere.

Intellectual capital flows to its best possible use in labor markets, just as financial capital flows to the company or sector that can make the best use of it in stock markets, he notes. The virtual currency industry is currently having difficulty maintaining its intellectual capital and the data shows that this exodus is not over yet.

In fact, more people may be scared given the recent government crackdown: Earlier this month, the Securities and Exchange Commission indicted Binance and Coinbase Global (ticker: COIN) for allegedly selling unregistered securities, among others violations.

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Cryptocurrency loss is AI gain. Given its status as the hottest new technology, it is raising much larger amounts of money from both established companies and venture capitalists, which in turn means it is also attracting more tech talent along with the rise in AI-related stocks .

However, the crypto winter may offer cause for optimism among more general investors, as virtual currencies, for all their rebound, have not fully participated in the rally that fueled Big Tech’s 2023 resurgence.

If nothing else, this tells us the shift to Big Tech may not be over, writes Colas. That spike for virtual currencies in November 2021 coincided nearly to the day with the Nasdaq’s record high. Until this asset class starts to move significantly higher, we may not have seen the top of the current rally for equities.

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However, cryptocurrency investors in particular may understandably feel depressed, given all of the above factors. Colas notes that, if nothing else, it’s impressive that the total cryptocurrency market was able to maintain a trillion-dollar status amid a steep plunge, but still a sharp decline from the previous $3 level. trillion.

Yes, many virtual currencies have been phenomenal long-term moneymakers, he concludes. But not for the past two and a half years. And counting.

No wonder then that so many are taking the road to AI instead, at least while the good times last.

Write to Teresa Rivas at teresa.rivas@barrons.com

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