If Anything Can Be Learned from the Crypto Market is That If a Shortcut Exists, It Will Be Taken

The following is a guest post from Shane Neagle, Editor In Chief fromThe Tokenist. If anything can be learned from the crypto market is that if a shortcut exists, it will be taken.

The crypto market is known for taking shortcuts whenever possible. When digital collectibles, or NFTs, rose to prominence, the market was quickly oversaturated.

In turn, this shifted the market focus away from speculative NFT buys on their resell potential and toward a broader market rout.

Similarly, with memecoins, no matter the rug pulls and pump and dumps, the allure of a quick buck on the memecoin ride up demonstrated the combination of low barrier to entry plus hype potential.

But what about the altcoin market itself, outside of memecoins and NFTs? Is there a broader lesson, or even threat, now that AI is an inextricable part of life? First, let’s examine what happens with NFTs as an enlightening parallel.

Oversaturation and Speculation Fatigue

Just prior to Terra (LUNA) collapse in May 2022, global NFT sales reached nearly $24 billion. The optimism was so high that JP Morgan projected $1 trillion in annual metaverse revenue within a decade. That forecast now seems completely out of place.

Although the cascade of bankruptcies, from Celsius to BlockFi and FTX, acted as a trigger for NFT market collapse, the writing was already on the wall. AI-powered image generators such as Stable Diffusion and DALL-E have drastically lowered the barrier to entry, opening the floodgates for derivative low-effort NFT collections.

Such AI-powered saturation drastically eroded the scarcity of collectibles, which ultimately drove down speculative PFP (profile picture) projects in favor of utility-driven NFTs and tokenized real-world assets (RWAs).

Altogether, the AI availability greatly exacerbated the underlying weakness of the NFT market – oversupply. This problem is now easy to see, as Ghibli mania is sweeping the social media space, generated by both ChatGPT and Grok.

In turn, the collapsing profit-making from NFTs induced speculation fatigue. Memecoins have mirrored this dynamic quite closely, with the help of additional AI-powered layers:

The ultimate result of AI amplification is the creation of a market that is highly prone to bubble bursts. Consequently, repeated bursts cause exhaustion and ever-decreasing retail engagement — especially when participants are lured by hype rather than guided by sound risk management. But the question is, could this type of crypto exhaustion infect the altcoin market on a deeper level?

AI In Blockchain Coding: New Distortion Frontier

For years, it has been common to measure the underlying value of a blockchain project by developer involvement. This developer activity then serves as a signal toward prospective tokenholders. After all, if a project has few core developers, there is much greater risk the project will suffer if they leave.

In turn, there would be less effort going into bug hunting, new features, roadmap implementation and optimization. This is why many dedicated websites exist to expose this metric, tracking developer commits across different time periods.

In short, developer activity measures blockchain’s health status. As developers seek incentives, it may even reveal the blockchain’s adoption potential as their key long-term value driver.

But with AI in play, we are looking at a significant distortion potential. Over the last year, it has been widely accepted that AI models, alongside image generation, are at their best when it comes to coding. Specifically, Anthropic’s Claude 3.7 has been well received as a coding multiplier, capable of replacing junior software engineers.

This opens an entirely new landscape in which few senior developers can leverage their AI underlings to:

And just as it happened with NFTs and memecoins, the lower the barrier to entry, the higher the oversupply potential. AI keeps lowering that barrier to entry, with the capacity for a full blockchain project pipeline, from smart contract code to social media boost.

It may even be the case that AI could fabricate smart contract audits by generating false confidence. When it comes to developer activity metric, AI tools can easily distort it with auto-generated commits and pull requests, or even fake GitHub accounts that generate minor and frequent updates.

Consequently, as new tokens come in the spotlight, it will be more difficult to assess its true value and health.

The Bright Side of AI-Powered Token Generation

Even in the early stage, AI models are becoming replacement-worthy when it comes to coding. This opens the door for churning out tokens with minimal effort, once again repeating the NFT-like cycle of flooding the market with low-utility tokens.

This will inevitably cause more exhaustion and disillusionment with the crypto space, as it will be more difficult to filter AI noise. By the same token, there will be advantages:

Ultimately, AI cannot sustainably fake adoption. Rather, AI will serve as a filtering mechanism to purge weak projects.

Unfortunately, memecoin activity over the last few years clearly shows that people seek out early opportunities in hopes of getting the coveted 10x profit lock-in. This is not an investor mindset but a quick buck mindset. Therefore, this driver will maintain incentives to use AI for crypto project generation for no other