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Submission: On June 17 via api from US — Scanned from NL
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SUBSCRIBE TO RECEIVE THE WEEKLY CIO MEMO A weekly market commentary from CIO Matt Hougan and the Bitwise Research Team, written for thoughtful crypto investors. Email Subscribe to Weekly CIO Memo Sign Up RECENT CIO MEMOS * CRYPTO AND AI: A $20 TRILLION MEGATREND? * WASHINGTON AWAKENS: THIS IS WHAT ALPHA LOOKS LIKE * THE SHOCKING ALLIANCE THAT COULD DRIVE US TO NEW ALL-TIME HIGHS * WHO’S BUYING BITCOIN ETFS (ACCORDING TO 13F FILINGS) * IT’S ALL ABOUT THAT BASE (AND OTHER THOUGHTS ON COINBASE) View All Have an account? Sign In JUNE 11, 2024 CRYPTO AND AI: A $20 TRILLION MEGATREND? JUAN LEON SENIOR CRYPTO RESEARCH ANALYST THE INTERSECTION OF AI AND CRYPTO IS GOING TO BE EVEN BIGGER THAN PEOPLE IMAGINE. I recently attended the annual Consensus conference in Austin, one of the biggest crypto gatherings in the world. The more than 15,000-person event featured discussions with countless industry experts on a wide range of topics, from tokenization and regulation to monetary policy and bitcoin ETFs. But if I had to pinpoint the biggest takeaway from the conference, it would be this: The intersection of artificial intelligence (AI) and crypto is going to be even bigger than people imagine. The two industries could add a collective $20 trillion to global GDP by 2030. It won’t happen overnight, but as I’ll explain below, we’re already seeing early indications of its potential. BITCOIN MINING AND AI: AN EMERGING PARTNERSHIP Unless you’ve been living under a rock, you’ve heard of the AI boom that has propelled the market cap of Nvidia—producer of the best AI chips in the world—above $3 trillion. That has made the chip maker the second largest public company in the world. Less well known is the impact the boom has had on data centers, which store the increasingly vast amounts of information driving AI. See, here’s the thing: The race for AI supremacy is creating an unprecedented shortage of data centers, AI chips, and access to electricity. The world’s four largest cloud companies (Amazon, Google, Meta, Microsoft) are expected to spend almost $200 billion on data center build-outs in 2025 alone, largely to service increasing AI demand. But new facilities are quickly filling up: About 83% of data center capacity under construction has already been leased in advance, with AI companies and cloud-service providers driving the demand, according to a March report by commercial real estate firm CBRE Group. Data centers just can’t keep up with the AI boom. That’s where miners come in. Bitcoin miners—the computer networks that secure the bitcoin blockchain—are built for the sole purpose of processing and storing gargantuan amounts of data. In other words, they have the very resources—powerful chips, state-of-the-art cooling systems, and accompanying infrastructure—that AI companies are desperate for. That was front and center this past week, when AI cloud provider CoreWeave offered to acquire bitcoin miner Core Scientific for $1.6 billion, a 55% premium over its market price. The offer came the same week that Core Scientific announced the largest miner-AI partnership to date: a $3.5 billion deal to host CoreWeave’s AI-related services in its data centers over the next 12 years. Core Scientific is not alone, with Hut 8, Iris Energy, and other miners announcing similar AI-hosting initiatives in recent months. Of course, this bodes well for miners, whose businesses are likely to benefit from a new source of revenue and a motivated customer base. But it also lends critical support to the larger bitcoin ecosystem, which depends on these miners to process transactions and secure the network. BEYOND BITCOIN MINING: LONGER-TERM OPPORTUNITIES FOR AI AND CRYPTO Over the longer term, crypto and AI could intersect in other areas that bear watching. One is information validation. While programs like ChatGPT have caught fire—the app notched an estimated 100 million monthly users in just two months—they’ve also incited controversy and raised new questions. Who controls AI-generated content, and how transparent should they be? To what extent does AI reflect or reinforce bias? How can users verify the authenticity of media when “deep fakes” are so prevalent? (On this last point, the World Economic Forum recently said that the “explosion in falsified information” that AI has made possible is the top immediate risk to the global economy.) So what does all this have to do with crypto? Recall that the public blockchains that power crypto are available to anyone and not controlled by a central entity. Creative entrepreneurs are finding ways to leverage this technology—built on the tenets of accessibility, transparency, and immutability—to counter the worst potential abuses of AI. One example: A startup we wrote about in March called Attestiv creates digital “fingerprints” for videos based on their metadata—for instance, when and where a video was recorded. It then stores that fingerprint on a public blockchain. If the video is manipulated, any platform where it’s being viewed can check the video against the original fingerprint and let the viewer know it’s been doctored. Theoretically, we could see similar ways of validating everything from original research to official government communications. It’s why many experts affirm that blockchains will play a pivotal role in putting checks and balances on AI. Another area where crypto and AI are likely to intersect is the realm of virtual assistants. Today, bots like Apple’s Siri or Amazon’s Alexa can do everything from purchasing plane tickets to booking appointments, and AI advances are making these tools more versatile. But that versatility will be limited in the future if these agents can’t execute more complex tasks quickly and efficiently. Pairing AI assistants with smart contracts and digitally native money like bitcoin or stablecoins—which are designed to move securely without the slow oversight of centralized entities—could open up new avenues to further enhance our productivity. Developments like these lead me to believe that the integration of AI and crypto will play to the advantage of both sectors, reshaping how we innovate and interact with the world. PwC projects that AI and crypto could add $15.7 trillion and $1.8 trillion to the global economy by 2030, respectively. While that adds up to $17.5 trillion, I would not be surprised to see their synergies have a compounding effect that could drive the combined value to $20 trillion or beyond. -------------------------------------------------------------------------------- RISKS AND IMPORTANT INFORMATION No Advice on Investment; Risk of Loss: Prior to making any investment decision, each investor must undertake its own independent examination and investigation, including the merits and risks involved in an investment, and must base its investment decision—including a determination whether the investment would be a suitable investment for the investor—on such examination and investigation. Crypto assets are digital representations of value that function as a medium of exchange, a unit of account, or a store of value, but they do not have legal tender status. Crypto assets are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies, stocks, or bonds. Trading in crypto assets comes with significant risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks and risk of losing principal or all of your investment. In addition, crypto asset markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. Crypto asset trading requires knowledge of crypto asset markets. In attempting to profit through crypto asset trading, you must compete with traders worldwide. You should have appropriate knowledge and experience before engaging in substantial crypto asset trading. Crypto asset trading can lead to large and immediate financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. The opinions expressed represent an assessment of the market environment at a specific time and are not intended to be a forecast of future events, or a guarantee of future results, and are subject to further discussion, completion and amendment. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice, or investment recommendations. You should consult your accounting, legal, tax or other advisors about the matters discussed herein.