Empire Newsletter: Is crypto vs AI a zero-sum game?

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Robot dollars

Ah, AI. 

It sometimes feels like the AI and crypto narratives are fighting each other for mainstream attention. 

I’m not saying it’s always the case, and there are clearly use cases for both — even together — but only if you’re familiar with the two spaces. 

“It seems trendy to frame crypto vs AI as a zero-sum competition. But we don’t buy it,” Paradigm co-founder Matt Huang tweeted last year.

Because we’re all crypto nerds here, I want to examine a certain part of what I like to refer to as “AI overload” — when everyone insists AI is about to change every single little thing, including venture capital. 

Let me back up for a second. Last week, Forbes reported that Point72 Ventures, the VC arm of Steve Cohen’s Point72 (not the hedge fund, mind you), plans to focus on AI, leading to layoffs on its FinTech team.

A source familiar with the firm confirmed the move to Blockworks, while also confirming that it’ll be pivoting away from crypto. 

I’m not trying to focus on Point72 Ventures, though, I’m just using the news as a convenient jumping-off point. Looking at Pitchbook data from last year, AI was a pretty hyped-up segment in comparison to crypto, which was left out in the cold. 

Galaxy data released earlier this week shows that second-quarter funding rose to $3.2 billion, up from $2.5 billion in the first quarter.

Now that crypto’s starting to warm back up — and see more funding — I wondered what venture capitalists were thinking about the crypto/AI debate. So I turned to Framework Ventures co-founder Michael Anderson for some answers. 

Framework, obviously, tends to chat with other crypto VCs. 

“Amongst this crowd, there’s a growing understanding that blockchain may play a crucial role in the AI space by offering a means to align financial incentives in the developer community. As it stands, AI faces considerable monopolization risk by major tech corporations, and so we’re looking at projects that leverage blockchain to create financial incentives for developers to build and stay in the open-source space,” Anderson said.

So is this the name of the game for non-crypto native VCs? Are we going to see them move away from crypto?

“One of the big mistakes that non-crypto VCs make is assuming that crypto can be treated as yet another vertical they can enter easily. They typically assign a few people who have a loose understanding of the space, who then face an uphill battle in the investment committee trying to win over peers who have little to no contextual knowledge of the industry,” Anderson told me.

It’s not the first time though, he added. It happened last cycle, and “Silicon-valley giants raised crypto funds and then either deployed into liquid markets at the top, or bought overvalued centralized companies that flopped.”

Anderson continued: “This class of VC firms probably are starting to realize that winning in crypto will require a much bigger commitment than they originally anticipated, so if they’re starting to take their eyes off the ball to chase the new thing, I’m entirely unsurprised.”

It’s actually not, in Anderson’s opinion, a bad thing for VC funds to chase after trends. 

It could even mean that “there will be less dumb money propping up bad ideas or ballooning valuations.” Or the VCs could also look into the AI/crypto crossover space, which is what Framework is paying attention to.

Anderson’s just not sold on AI being the next big payoff for the traditional VC firms. 

“In general, we think that AI will be a deadend for most VC investors, as the AI incumbents have both the momentum and resources to crush most competition. Look no further than OpenAI’s recent updates making several Y-Cominator startups obsolete almost overnight,” he said.

Framework, instead, plans to focus — and has focused — its energy on “AI projects that are highly differentiated and/or blockchain adjacent.”

So, no, AI’s not going to steal your lunch money anytime soon, but maybe don’t be surprised if it continues to dominate headlines. 

And maybe that’s for the best, so crypto can focus on building without unnecessary distractions.

— Katherine Ross

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