Will the altcoin market face even more troubles?

If there is an important lesson from the crypto market, it is this: when there is a shortcut, people will not hesitate to follow it. When NFTs – digital collectibles – first appeared, the market witnessed a massive frenzy and quickly became saturated. As a result, buying NFTs as a speculative investment based on the ability to resell turned into a stampede, as their value could no longer be maintained as expected.

Similar to memecoins, despite rug pulls and pump & dumps, the strong allure of making quick money continues to prove the dangerous combination of low barriers to entry and high hype potential.

What about the altcoin market, aside from memecoins and NFTs? Are there any lessons to be learned or even threats to be concerned about as AI increasingly becomes an indispensable part of life? Before delving into analysis, let’s take a moment to reflect on what has happened with NFTs as a cautionary example worth considering.

Excessive Saturation and Fatigue of Speculators

Just before Terra (LUNA) collapsed in May 2022, global NFT sales had reached nearly $24 billion. The optimism was so high that JP Morgan projected annual Metaverse revenue to reach $1 trillion within a decade. Currently, that forecast seems completely out of place.

NFT Sales | Source: CryptoSlamAlthough a series of prominent bankruptcies like Celsius, BlockFi, and FTX have contributed to the collapse of the NFT market, in reality, it was all foreseen. AI-powered image generation tools such as Stable Diffusion and DALL-E have significantly lowered the barriers to entry, opening up opportunities for derivative NFT collections that require little creative effort.

The saturation driven by AI has eroded the value of scarcity in collectibles, and ultimately, the market began to shift from speculative PFP NFT projects (profile pictures) to NFTs with real utility and real-world assets (RWA) being tokenized.

Overall, the widespread availability of AI has highlighted and exacerbated the fundamental weakness of the NFT market: supply exceeding demand. This is easily noticeable, especially as the Ghibli craze spreads across social media platforms, aided by ChatGPT and Grok.

The decline in profits from NFTs has left speculators feeling fatigued. Memecoins have accurately reflected this momentum, supported by additional AI technology layers.

– AI bots, such as Truth Terminal, flood social media posts with AI-generated memes and stories to promote tokens.

– Sniper bots, such as Banana Gun, execute trades within milliseconds, continuing to exploit the memecoin market by sending false demand signals.

The ultimate result of AI amplification is the creation of a market prone to bubble bursts. As a result, continuous collapses exhaust retailers and limit participation — especially when participants are drawn by hype instead of being guided by sound risk management. But the question is, can this kind of cryptocurrency exhaustion infect the altcoin market outside of NFTs and memecoins at a deeper level?

AI in Blockchain Code: A New Frontier of Development

For many years, measuring the fundamental value of a blockchain project by the involvement of developers has been very common. Developer activity serves as a signal for potential token holders. After all, if a project has few core developers, the project is at much greater risk if they leave.

At the same time, there will be less effort spent on bug hunting, new features, roadmap implementation, and optimization. This is why many dedicated websites exist to make this metric public, tracking developer engagements over different time periods.

Ethereum continues to dominate developer activity among the top 10 blockchain projects | Source: ArtemisIn summary, developer activity is an important measure reflecting the state of blockchain. As developers seek new momentum, it can reveal the long-term potential of blockchain, with the ability to accept reality being a determining factor in sustainable value.

However, with the rapid development of AI, we are witnessing a profound change and significant potential. Over the past year, AI models have demonstrated superior advantages, not only in generating images but also in programming. Specifically, Claude 3.7 from Anthropic has been warmly received as a powerful tool for coding assistance, even capable of replacing entry-level software engineers.

This opens up a completely new context: few senior developers want to leverage junior AI staff to:

• Create smart contracts, from ERC-20 to BEP-20.

– Create a token economy, whitepaper (white paper) and even a roadmap.

– Copying existing open-source projects and implementing a few adjustments.

And just like what happened with NFTs and memecoins, the lower the barrier to entry, the higher the potential for supply to exceed demand. AI continues to lower that barrier to entry, with the ability to manage the entire comprehensive blockchain project process, from smart contract code to driving social media.

In fact, AI can conduct audits of smart contracts, but it can also create false confidence. When considering the activity metrics of developers, AI tools can easily distort these figures by automatically generating commits, pull requests, or even creating fake GitHub accounts that continuously update small and frequent changes. This makes it increasingly difficult and prone to misunderstanding to assess the true value and status of new tokens.

The Positive Aspects of Creating AI-Supported Tokens

Even in the early stages, AI models are becoming usable when it comes to code. This opens the door for creating tokens with minimal effort, once again repeating a cycle similar to NFTs flooding the market with low utility tokens.

This will certainly cause more exhaustion and disillusionment for the cryptocurrency space, as it will be harder to filter AI noise. Similarly, there will be advantages:

– Bitcoin will be further strengthened as a unique cryptocurrency based on real-world assets ( energy, hardware ) through the Proof-of-Work algorithm. Therefore, Bitcoin will serve as an anchor for the larger altcoin market.

• AI-generated code projects will lead to more forks and zombie chains, but the rapid decline in this activity will drive the legacy chains prior to AI.

• Projects with real-world use cases will continue to attract attention.

Ultimately, AI cannot sustainably fake acceptance. Instead, AI will serve as a filtering mechanism to eliminate weak projects.

Unfortunately, the activity of memecoins in recent years has clearly shown that people are seeking early opportunities in the hope of achieving a dream 10x return. This is not an investor mindset but a get-rich-quick mentality. Therefore, this motivation will sustain the encouragement to use AI to create cryptocurrency projects with no purpose other than to exploit wealth.

However, conversely, blockchain projects will also provide solutions. A typical example is the OriginTrail project (TRAC) which is leveraging the decentralized Knowledge Graph (DKG) to ensure the verifiability of information used by AI.

"Even the abuse of social media for political manipulation seems insignificant compared to the lack of trust in the solutions we are 'crafting' to shape our perceptions. The systems we rely on to process vast amounts of knowledge and provide input for decisions or even execute autonomous actions must meet the highest standards of transparency and verifiability," according to the Whitepaper "The Internet Can Verify for Artificial Intelligence: The Convergence of Cryptocurrency, the Internet, and AI" by Trace Labs.

In the long run, it will be wise to predict that trust in the altcoin market will continue to erode. Ultimately, the possibility of mass-produced smart contracts that have not been audited could lead not only to rug pulls but also to serious hacks, causing significant damage. Although on-chain reputation-building efforts from Karma3Labs may have some positive impact, it remains unclear whether such innovative solutions can overcome acceptable limits.

Disclaimer: This article is for informational purposes only and is not investment advice. Investors should do their own research before making any decisions. We are not responsible for your investment decisions.

• Bitcoin is unlikely to drop to $65,000 as the central bank is about to inject liquidity into the market.
• Canary Capital filed for a listing of the PENGU ETF and Pudgy Penguins NFT.
• Assessing the poor condition of the altcoin market

Minh Anh

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