In the past six months there has been a stampede of cash outflows Bitcoin (CRYPTO: BTC) and artificial intelligence (AI). Most notably, publicly traded Bitcoin mining companies are winding down their crypto mining operations, selling their Bitcoin, and using that money to make a high-profile pivot to AI computing.
But is AI a better long-term investment than Bitcoin? Let’s take a closer look.
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Let’s start with a simple chart, comparing the performance of Bitcoin and Nvidia (NASDAQ: NVDA) in the last five years. Even Bitcoin maximalists will have a hard time explaining this chart. Over the past five years, Nvidia stock has increased 1,266%. Bitcoin, by comparison, is up only 28%.
And it doesn’t get any better when you compare Bitcoin to publicly traded Bitcoin mining companies. Two of these AI-powered miners exist TeraWulf again Cipher Digital. Over the past 12 months, TeraWulf is up 390%, while Cipher Digital is up 365%.
The problem, frankly, is that Bitcoin has lost all of its gains of the past five years. At a current price of $70,000, the world’s most popular cryptocurrency is trading at roughly the same price as it was back in November 2021, when it hit a (then) all-time high of $69,000.
So it’s easy to understand why Bitcoin miners are abandoning Bitcoin right now. The cost of mining one Bitcoin is now estimated at $87,000. So if the spot price of Bitcoin is below that, it doesn’t make economic sense to mine Bitcoin. If Bitcoin stays at the $70,000 level, I can fully expect other Bitcoin miners to participate as well. A pivot to AI seems like the right move.
However, the world of Bitcoin and AI may not be mutually exclusive. In other words, the Bitcoin blockchain ecosystem may finally embrace the full convergence of crypto and AI.
One scenario, first proposed by Cathie Wood of Ark Invest nearly two years ago, envisioned a world where AI agents use Bitcoin to make small online payments. You’ll just need to give these AI agents a blockchain wallet, fill it with Bitcoin, and tell them what to do.
If millions of AI agents use Bitcoin to make small payments, Bitcoin will have a chance to become more valuable than any AI company in the world. Bitcoin will be more than a digital currency — it will be an AI-powered blockchain ecosystem. If Nvidia is worth $4 trillion, maybe Bitcoin is also worth $4 trillion?
Finally, don’t forget: Investors have been warning for some time that AI may be in a big bubble right now. Billions of dollars are being poured into AI, but it’s not immediately clear whether all this money will actually pay off.
As Goldman Sachs (NYSE: GS) recently revealed in a report, there is a huge gap between revenue and capital expenditure when it comes to AI. So it may not be fair to compare Bitcoin with AI flying stocks trading at frothy valuations.
In the short to medium term, Bitcoin mining stocks may continue to outperform Bitcoin. But in the long run, my money is in Bitcoin. For more than a decade, Bitcoin has been the world’s leading commodity. Quitting Bitcoin now could end up being a terrible mistake.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions and recommends Bitcoin, Goldman Sachs Group, and Nvidia. The Motley Fool has a policy of disclosure.
Better Buy: Bitcoin or AI? was first published by The Motley Fool
