As I was having my usual chai this morning, scrolling through the financial news, a striking contrast caught my attention. The cryptocurrency market, which once soared to nearly $3 trillion in November 2021, had plummeted to around $1.1 trillion by the end of 2022, representing a staggering loss of over $1.9 trillion, as per CoinMarketCap data analysed by The Economist. This significant 'crypto winter' didn't just wipe out fortunes; it seemed to trigger a quiet but profound shift among High-Net-Worth Individuals (HNWIs) – individuals with at least $1 million in liquid financial assets – and larger institutional investors – organisations that pool money to purchase assets. They are moving their capital away from the volatile world of cryptocurrencies – digital currencies secured by cryptography – and towards the more tangible, growth-potential sector of Artificial Intelligence (AI).
From my observations, the recent past has truly tested investor confidence in digital assets. Events like the collapse of major cryptocurrency exchange FTX in November 2022, along with other high-profile failures, eroded trust and brought in stricter regulatory scrutiny globally. This increased volatility, with Bitcoin’s 30-day historical volatility averaging over 60% in 2023 compared to the S&P 500's typical 10-15% (Yahoo Finance, 2023), pushed many to seek safer havens. Anthony Scaramucci, founder of SkyBridge Capital, explained this well, saying institutional investors 'are always looking for tangible value and regulatory clarity,' and crypto's 'volatility and regulatory uncertainty' made AI far more appealing. Ray Dalio, founder of Bridgewater Associates, even called the 'crypto winter' a 'reckoning for speculative assets without clear utility.' Adding to this, digital asset products saw net outflows of approximately $540 million in Q4 2022 and continued to struggle in early 2023, while AI-focused Exchange Traded Funds (ETFs) – investment funds traded on exchanges – saw strong inflows, with some growing over 40% (CoinShares, ETF.com, 2023).
Meanwhile, Artificial Intelligence (AI) – the simulation of human intelligence processes by machines – has been showing immense, practical promise. The public launch of ChatGPT by OpenAI in November 2022 was a game-changer, demonstrating tangible applications and sparking an unprecedented wave of interest and Venture Capital (VC) – financing for high-growth startups – funding for AI companies. Major tech giants quickly followed; for instance, Microsoft invested $10 billion in OpenAI in January 2023, signalling a fundamental shift in strategy. The numbers speak for themselves: global AI startups raised $42.5 billion in 2023, while crypto/blockchain startups saw a significant decline to $10.7 billion, down from $23.1 billion in 2022, according to PitchBook-NVCA. The global AI market itself is projected to reach a massive $1.8 trillion by 2030 (Grand View Research, 2023). Jensen Huang, CEO of Nvidia, rightly calls AI 'the next foundational technology wave.'
This preference for AI is clear among big investors too. An Invesco study from 2023 found that 63% of institutional investors believe AI will have a 'major impact' or be 'transformative' for their portfolios over the next five years, compared to just 38% for blockchain/crypto. Even ultra-high-net-worth individuals in the US (Knight Frank, 2023) showed this trend, with only 3% planning to increase crypto investments in 2023 (down from 12% in 2022), while 28% planned to increase tech investments, including AI. In India, our HNWIs and institutional players have also shown caution towards cryptocurrencies due to domestic regulatory uncertainties (Economic Times, 2022-2024). But our burgeoning tech talent and startup ecosystem are seeing a significant surge in AI-focused investments; Indian AI startups raised $2.4 billion in 2023, reflecting both global trends and a strong government focus (NASSCOM, 2023). Yahaan par toh paisa wahi jaata hai jahan bharosa hota hai – here, money flows where there is trust.
Ultimately, this shift isn't just about timing; it’s about a discerning choice between speculative assets and those offering tangible utility and a clearer path to economic transformation. While crypto may have its long-term technological potential in areas like Decentralized Finance (DeFi) – financial tech on a blockchain – for the 'smart money,' AI’s current demonstrable impact and foundational growth potential are undeniably more attractive.
So, I'm curious, what are your thoughts on this big shift in investment? Do you think AI is simply the next bubble, or does it represent a more solid, tangible future than crypto ever could?
