OpenAI's brainchild, ChatGPT, sparked a revolution in artificial intelligence (AI), drawing 100 million users a few months after its launch on November 30, 2023—the fastest in history. It thrust AI into the limelight and put a spotlight on crypto assets related to AI. SingularityNET (AGIX) increased by 20%, and Fetch.AI (FET) rocketed by 50% in two weeks after the ChatGPT launch, despite being unrelated to ChatGPT, dwarfing Bitcoin (+1%) and Ethereum (-3%).
In this blog post, we unpack the academic study The Influence of ChatGPT on Artificial Intelligence Related Crypto Assets published in peer-reviewed journal Finance Research Letters – probing into the ripple effect of the 'ChatGPT effect' on AI crypto assets, and what it means for the crypto market.
Investors Follow Tech Giants
In response to the ChatGPT launch, tech titans like Google and Baidu turbocharged AI development. Google quickly released its competitor, Bard, and mentioned 'AI' over 140 times in their keynote address, leaving no doubt about their perceived value of the technology. Taking note, this sparked a global investor rush, raising the valuations of companies utilizing AI technologies. Share prices for c3.ai, an AI software specialist, increased by 28% after the company announced plans to incorporate ChatGPT. BigBear.ai and SoundHound AI, both companies unrelated to ChatGPT and with unchanged fundamentals, saw their stock prices soar following the ChatGPT launch.
The ChatGPT Ripple Effect
The newly published study uses the sophisticated synthetic difference-in-difference (SDID) approach, which analyzes the impact of the ChatGPT launch on AI crypto assets by comparing before and after scenarios to non-AI crypto assets. It reveals that CoinGecko's list of AI crypto assets surged 10.7% a month after the ChatGPT launch and, even more impressively, 35.5% in the following month. This phenomenal surge in value shows that AI crypto assets bucked the trend as the Sentix Bitcoin Sentiment data showed the cryptocurrency market was amidst a bear market and a period of extreme investor uncertainty.
Retail Investors Lead the Way
The study delves into the intriguing relationship between retail investor attention and the boom in AI crypto asset prices. Before the ChatGPT launch, fluctuations in Google search volumes for terms like "AI," "artificial intelligence," and "ChatGPT" did not move the needle on AI crypto prices or non-AI crypto prices. After the launch, changes in search volumes for these keywords became important pricing indicators exclusively for retail investors investing in AI crypto assets. As AI keyword searches increased, AI crypto asset returns rose while non-AI crypto assets remained unaffected, highlighting the strong association between online retail investor attention and AI market performance. It's the digital version of 'follow the money"—in this case, 'follow the search terms'!
Institutional Investors Step Back
While institutional investors have the agility, financial means, and access to react to market changes, the study reveals that retail investors propelled the AI-crypto frenzy triggered by ChatGPT. Before the launch, institutional interest in AI, measured through the frequency and sentiment of financial news wires on Refinitiv's Thomson Reuters Eikon, had no impact on AI or non-AI crypto assets. However, after the launch, institutional attention influenced AI-crypto asset prices to a substantially smaller degree than retail investors. The study's finding is consistent with a JP Morgan survey in 2022 that found 72% of institutional investors had no plans to trade crypto assets in the next five years.
CoinGecko Categories
The world of finance loves catchy terms, from Subprime (2008), Austerity (2010), Tapering (2013), to SPACs (2021). In the rapidly evolving sphere of cryptocurrencies, the task of keeping pace with trends can seem overwhelming. CoinGecko, however, provides a roadmap in the form of 100+ curated lists of crypto assets – including foundational Layer 1 cryptos, smart platforms, stablecoins, NFTs, and whimsical meme coins. This study reveals that CoinGecko’s list of AI assets served as a valuable beacon, enabling investors to chart their course and stay one step ahead of the next crypto wave.
Final Thoughts
Post-ChatGPT, AI-crypto assets enjoyed a meteoric rise. The study highlights several key drivers behind this phenomenon: perceived quality, the rise of retail investors, a retreat by institutional investors, information diffusion, and network effects. ChatGPT's media coverage enhanced AI asset quality perception, while institutional investors' crypto space waning enthusiasm left retail investors to champion AI-crypto prices. ChatGPT's ability to simplify complex technical concepts empowered retail investors to make informed decisions, and its launch may have created a network effect for AI-crypto assets, drawing in more users and fueling demand. The convergence of these factors propelled AI-assets to remarkable highs, demonstrating the transformative impact of ChatGPT on the market.
Reference: Saggu, A., & Ante, L. (2023). The Influence of ChatGPT on Artificial Intelligence Related Crypto Assets: Evidence from a Synthetic Control Analysis. Finance Research Letters, 103993. https://doi.org/10.1016/j.frl.2023.103993
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Dr. Lennart Ante is CEO of the non-profit research institute Blockchain Research Lab. He obtained his PhD from University of Hamburg and is convinced that the blockchain technology will have a sustainable influence on business models and society. With his research, he would like to develop positive potentials of the technology and assess possible barriers and risks. Follow the author on Twitter @Lennart_Ante
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