Analysis: Four reasons crypto is losing ground to AI

The cryptocurrency market is struggling to compete with the artificial intelligence (AI) boom for institutional capital, according to an analysis by Cointelegraph Market Research. The following are four key reasons why crypto is losing out to AI: - Performance gap. The S&P 500, excluding AI stocks, has risen only 3.5% this year. In contrast, an AI-focused index has surged nearly 50% over the same period. AI-related stocks have been the primary driver of the broader index's recent rally, leading the S&P 500 to 11 consecutive record-high closes in the past month. - Scale of investment in AI. U.S. Big Tech firms are projected to spend approximately $725 billion on AI infrastructure this year. Nvidia recently posted a single-quarter revenue of $81.6 billion, while memory chip maker SK Hynix is reporting a 72% profit margin, fueled by demand from Nvidia's supply chain. Institutional investors follow performance, and cryptocurrency is not currently delivering comparable results. - Valuation challenges. AI infrastructure spending can be easily verified through metrics like revenue, capital expenditures (CAPEX), and profit margins. In contrast, the value of cryptocurrencies is difficult for traditional institutions managing benchmark portfolios to quantify. While the stablecoin supply has reached an all-time high, indicating peak dollar liquidity within the digital asset ecosystem, these funds are largely remaining in tokenized U.S. Treasurys for stable returns rather than flowing into crypto. Liquidity exists, but conviction to invest in risk assets is lacking. - Timing and the identity of sellers. U.S. spot Bitcoin ETFs recorded $2.3 billion in net outflows last month, marking their worst monthly performance this year. This included a 10-day streak of net outflows that coincided with the rally in AI-related stocks. This selling pressure was concentrated among large institutional funds rather than being widespread across the market. Long-term holders continue to accumulate quietly off-exchange. Major crypto market maker Wintermute revealed it has been buying over-the-counter (OTC) around the $72,000 level. This suggests investors have not abandoned crypto, but that large-scale capital is currently opting for what it perceives as clearer investment opportunities.