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Covalent CEO Ganesh Swami Explores Reasons Behind AI Tokens’ Underperformance and Their Correlation to AI Stocks

Last Updated June 10, 2024 10:16 AM
Valdrin Tahiri
Last Updated June 10, 2024 10:16 AM

Key Takeaways

  • The basket of AI tokens started 2024 with an increase but has fallen since March.
  • The Nvidia (NVDA) stock price reached a new all-time high price in June.
  • Akash Network (AKT) is likely completing the final leg of its correction.

AI tokens have been subject to much fanfare in 2024, possibly linked to the massive increase in price of NVDA and the possibility that similar increases will happen in AI tokens. While this was the case in the beginning of the year, this has changed this March.

In an exclusive interview with CCN, Ganesh Swami, the CEO and co-founder of Covalent , a leading blockchain data analytics company discusses the correlation between AI and crypto, whether the hype is warranted and some of his favorite projects.

AI Tokens Struggle Despite NVIDIA All-Time High

Even though AI tokens started the year as one of the best performing categories, the price of a basket of the largest AI tokens has gradually fallen since March. A descending parallel channel contains the decrease, indicative of a corrective movement. However, the price failed to break out despite numerous attempts at doing so (red icons).

In fact, AI tokens have been one of the worst performing categories in May. This is despite NVDA reaching a new all-time high of $1,255 in June and outperforming its expected earnings.

AI Token Performance
Custom Daily Chart | Credit: TradingView

The most recent rejection happened on June 7. This took the price back to the $52.5 support area and almost caused a breakdown. If this happens, it can trigger a drop to the next closest support at $32. This will be a new yearly low and can take the price back to the yearly lows.

While there are exceptions to this performance, more specifically RNDR and GRT, the AI sector as a whole has not performed well this year.

Correlation Between AI and Crypto

Ganesh Swami, the CEO of Covalent had some thoughts about the correlation between the price of AI tokens and that of AI stocks. Swami believes that market sentiment around AI technologies is important for AI related cryptocurrencies. However, he explained that the increase in AI stocks is not as it seems in first glance. More specifically, he stated that:

While Nvidia beat earnings and has ridiculous growth, reflected in the stock price, other markets are seeing drops. More specifically, Salesforce and MongoDB are seeing pullbacks and reductions in revenue. Therefore, all of the existing revenue is getting cannibalized and put into ai.

Swami expressed concern about the revenue concentration. He stated that hyperscalers such as Google, Microsoft, Amazon and Apple are the companies that are spending the most, rather than the startups. So, there is possible concern if one of them decides to pull out.

Nevertheless, he expressed optimism when asked if blockchain technology is particularly suited to support and enhance AI developments and applications. While accepting the short-term speculative nature of AI cryptocurrencies, he believes that blockchain is the answer to AI’s problems in the long-term.

The reason for this is that AI requires clean data to train models. If you cannot guarantee the veracity of the data fed into the models, it does not matter how powerful the training system is, since the conclusions will be flawed. Since data in the blockchain is secure and verified, it presents a great fit for training AI models.

Finally, Swami said that one of his favorite projects in the cryptocurrency space is Akash Network, which he considers as an Airbnb for computer GPUs. More specifically, he stated:

Akash is Airbnb for GPU. It has written code that NVIDIA uses in their products. They have traction, revenue, a strong community and are listed on many CEXes. Bittensor is also interesting due to its use of subnets, but it is still in its early stages, so it does not have applied use cases yet.

Since Akash is the favorite projects, we will analyze its price movement below.

AKT Price Could Complete Correction Soon

The AKT price has traded under the $6.20 horizontal resistance area since the beginning of March. While the price briefly moved above this level on April 23, reaching a new all-time high, that was only a wick high (red icon) which could not be sustained.

The ensuing decrease caused a breakdown from an ascending support trend line that has existed since November 2023.

As a result, it is likely that AKT is in wave C of an A-B-C corrective structure. Giving waves A:C a 1:1 ratio leads to a low of $2.67. The $2.67 area is also close to a horizontal support level, making it likely AKT will reach a bottom there.

AKT Price Correction
AKT/USDT Daily Chart | Credit: TradingView

The daily time frame RSI is also approaching an all-time low. A decline to $2.67 will likely take it into oversold territory and into a new all-time low.

Despite this bearish AKT price prediction, reclaiming the ascending support trend line will invalidate the ongoing breakdown. In that case, the AKT price can increase toward the $6.20 resistance area once more.

AI Tokens Underperform Despite NVDA Surge

The divergence between the increase in price of NVDA and the performance of AI tokens suggests that their prices might not be correlated after all. The price increase of NVDA is not without its drawbacks, more specifically its revenue concentration and cannibalization from other sectors.

However, blockchain technology is well positioned to assist AI training models in the long-term. Finally, the AKT price is likely to continue correcting and reach new lows before an eventual reversal.

Disclaimer
Please note that the contents of this article are not financial or investing advice. The information provided in this article is the author’s opinion only and should not be considered as offering trading or investing recommendations. We do not make any warranties about the completeness, reliability and accuracy of this information. The cryptocurrency market suffers from high volatility and occasional arbitrary movements. Any investor, trader, or regular crypto users should research multiple viewpoints and be familiar with all local regulations before committing to an investment.
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