Built Like Bitcoin, Designed for AI: Is Bittensor (TAO) a Buy After Climbing 40% in 1 Month?

Bittensor (CRYPTO: TAO) is a cryptocurrency that's looking to sell services for training and deploying AI, and it's up by about 20% during the past month. Although it has an ecosystem of projects similar to Ethereum's, its supply policy mimics that of Bitcoin (CRYPTO: BTC), making it an interesting play that combines both growth from competing in the AI segment as well as scarcity.

So is this coin a bit too hot to touch at the moment, or does its set of opportunities make it worth buying some now regardless of the recent run-up?

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This coin's angle is intriguing

Bittensor's native token, TAO, isn't trying to be the next Bitcoin, but the structural parallels are still quite real. Both coins cap their total possible supply at 21 million, both issue new supply at a declining rate through halving events that cut production in half every four years, and both require miners to produce new supply.

Where they diverge is what the newly created supply incentivizes. Bitcoin miners solve intentionally arbitrary cryptographic puzzles and receive new coins in return; Bittensor miners contribute their computing power to training AI models, offering rentable computing power, or delivering data storage services to specialized marketplaces called subnets.

You can think of subnets as being a bit like the ecosystem projects on Ethereum; more than 128 subnets are currently active, with each focused on a specific economically valuable task like text generation or deepfake detection. One twist with Bittensor is that there's a group of participants called validators who grade miners' work such that the top performers earn the most TAO.

So Bittensor is a pretty interesting chain because it has a system for seeding its ecosystem with several types of self-interested actors and service providers, all of whom stand to gain by participating. All of those players are compensated in TAO, which is increasingly scarce over time -- and prospective users also need to buy and hold it to purchase the services in its domain. Thus, although its pitch isn't that it's a scarce store of value like Bitcoin, it may well experience a lot more demand for its supply.

That's likely part of the reason institutional interest in the asset is picking up. One asset issuer, Grayscale, has filed the paperwork with regulators to convert its publicly traded Bittensor Trust into an exchange-traded fund (ETF). Approval would make it the first U.S.-listed ETF for an AI-focused crypto asset.

And that's a strong resume for a coin with just a $2.6 billion market value.

There's still a long road ahead

As promising as Bittensor may seem, there are a few considerations that might not make it the right investment for everyone.

The coin has experienced declines of more than 80% from previous peaks. If you find Bitcoin's price swings to be a bit nerve-wracking, this coin will feel very stressful to hold.

More importantly, the chain's subnet economy is the central pillar of the bull thesis, but it's still very early. Some subnets are starting to show signs of a product-market fit -- one called Chutes offers AI inference services at costs as much as 90% less than the dominant centralized cloud providers -- but many others remain experimental and unproven. If enough of those subnets mature into productive services, the coin will benefit from a virtuous cycle, wherein useful subnets attract users and their capital, driving purchasing, which in turn funds further development.

Of course, if adoption stalls, the Bitcoin comparison is just a tight supply story without a working demand engine, and there is an entire universe of those assets in the huge graveyard of failed cryptocurrencies. Bittensor is quite the risky investment no matter how you slice it.

Thus, for investors already comfortable with altcoin risk, and who already have a sufficiently diversified portfolio, Bittensor offers something that's fairly hard to find elsewhere -- an asset tying scarcity mechanics to AI utility rather than pure speculation. It's probably worth buying and holding for at least a few years.

Alex Carchidi has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Bittensor, and Ethereum. The Motley Fool has a disclosure policy.