Venture capitalists in Silicon Valley, including those who previously placed significant bets on cryptocurrencies, are vying for positions in artificial intelligence businesses.
According to statistics from the research firm PitchBook, VCs invested less money in crypto and digital asset firms in the most recent quarter than at any time since 2020. At the same time, even at its peak, cryptocurrency was outperformed by the total worldwide value of investments made in AI between April and June.
According to Robert Le, a crypto analyst at PitchBook, the figures show a recent trend among many tech investors, even those who earlier supported cryptocurrencies, to shift away from the scandal-plagued digital asset sector and towards the most recent developments in AI.
Investors now find AI to be very enticing due to recent advancements, but crypto has become toxic due to a bombardment of scandals, new laws, and falling prices. The managing partner of Millennia Capital, Joe Zhao, stated that he is prepared to give up digital assets. Zhao and Millennia previously supported cryptocurrency businesses like Blockstream and Lumida; now, they’re delving deeper into AI. Stability AI is one of the firms in which Millennia has already made a significant investment.
According to Zhao, AI has a much wider range of applications than blockchain.
Some cryptocurrency investors have drawn criticism for stoking interest in AI. According to a May story from the Block, the prominent cryptocurrency venture capital firm Paradigm, founded by Matt Huang and Fred Ehrsam, co-founders of Coinbase Global Inc., played up its interest in AI rather than mentioning cryptocurrencies on its website. This month, Huang tweeted that the website modification was “a mistake” and gave visitors a link to a fresh version of the company’s homepage with moving neon green and black banners bearing the word “CRYPTO.”
In a tweet from June, Huang stated that Paradigm is “excited to continue exploring and that both the crypto and AI industries are interesting and will have plenty of overlap.
Michelle Fradin, a Sequoia Capital investor who assisted in the company’s decision to invest in the now-bankrupt cryptocurrency exchange FTX, has recently tweeted more about artificial intelligence (AI) than cryptocurrency. Furthermore, she recently collaborated on a paper for the company titled The New Language Model Stack: How Businesses are Realizing AI Applications.
There is a lot of interest in the convergence of AI and crypto, Le added, and some investors think there are opportunities to invest in both digital assets and AI.
Cryptocurrency and artificial intelligence are natural counterweights for one another, according to Ali Yahya, a general partner at Andreessen Horowitz, which financed both Tools for Humanity and Gensyn. Crypto will will enhance AI by providing some of the decentralization that AI maybe needs, he said, pointing out that businesses like OpenAI, Alphabet Inc.’s Google, and Microsoft Corp. have already accumulated enormous dominance over the developing sector.
Ben Fielding and Harry Grieve, the co-founders of Gensyn, claimed that before starting the company, they were more intrigued in machine learning than cryptocurrencies. Gensyn now considers itself more of a technology infrastructure business, despite being primarily supported by cryptocurrency venture investors. Grieve stated, they don’t think of themselves as a crypto project, so to speak.
Gensyn is developing a blockchain protocol that will serve as the foundation for a decentralized market for purchasing and selling compute power for machine learning models. The platform, according to Fielding, might increase competition in the computing industry, where the sole suppliers are extremely large companies that rent out their enormous data centers.
Compared to the same period last year, venture funding for AI was about flat in the second quarter, but there was a significant increase in investments in the US market. PitchBook reported that global investment for startups focused on digital assets fell 76% during the same time from the prior year.
Despite the decline, cryptocurrency transactions are still taking place. Le pointed out that compared to the US, where regulation has severely hurt the business, the crypto markets in Europe, Dubai, Hong Kong, and Singapore are displaying more growth. The fact that many crypto funds are required to support the space by mandate, he added, means he anticipates crypto venture investing will continue both domestically and internationally.
Andreessen Horowitz recently announced that it was setting up an office in London due to the UK’s crypto-friendly atmosphere. The company raised the largest cryptocurrency fund ever at $4.5 billion. According to Yahya, the company is still dedicated to funding cryptocurrency businesses, especially through token rounds. They don’t intend to slow down, he declared.
