Over the past six months, there has been a stampede of money out of Bitcoin (BTC +2.19%) and into artificial intelligence (AI). Most notably, publicly traded Bitcoin mining companies are winding down their crypto mining operations, selling off their Bitcoin, and using that money to make a high-profile pivot into AI computing.
But is AI really a better long-term investment than Bitcoin? Let's take a closer look.
Image source: Getty Images.
Bitcoin vs. AI
Let's start with a simple chart, comparing the performance of Bitcoin and Nvidia (NVDA 0.48%) over the past five years. Even Bitcoin maximalists would struggle to explain away this chart. Over the past five years, Nvidia stock is up a whopping 1,266%. Bitcoin, by way of comparison, is up only 28%.
NVIDIA Corporation chart by TradingView.
And it doesn't get much better if you compare Bitcoin to publicly traded Bitcoin mining companies. Two of these miners making an aggressive push into AI are TeraWulf and Cipher Digital. Over the past 12 months, TeraWulf is up 390%, while Cipher Digital is up 365%.
CRYPTO: BTC
Key Data Points
The problem, quite frankly, is that Bitcoin has given up all of its gains of the past five years. At a current price of around $70,000, the world's most popular cryptocurrency is trading at almost the same price 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 to mine a single Bitcoin is now estimated to be $87,000. So if the spot price of Bitcoin is below that, then it doesn't make any economic sense to mine Bitcoin. If Bitcoin remains at the $70,000 level, then I would fully expect other Bitcoin miners to capitulate as well. A pivot into AI seems like the right move.
Bitcoin's AI future?
However, the worlds of Bitcoin and AI may not be mutually exclusive. In other words, the Bitcoin blockchain ecosystem might finally embrace the full intersection of crypto and AI.
One scenario, first proposed by Cathie Wood of Ark Invest nearly two years ago, hypothesized a world in which AI agents use Bitcoin to make online micro-payments. You'd just need to give these AI agents a blockchain wallet, fill it up with Bitcoin, and tell them what to do.
If millions of AI agents are using Bitcoin to make micro-payments, then Bitcoin would have the potential to become more valuable than any AI company in the world. Bitcoin would become more than just a digital currency -- it would become an AI-powered blockchain ecosystem. If Nvidia is worth $4 trillion, then maybe Bitcoin is also worth $4 trillion?
What if AI is a bubble?
Finally, don't forget: Investors have been warning for some time that AI could be in a massive bubble right now. Billions of dollars are being poured into AI, but it's not immediately clear if all this money is actually going to pay off.
As Goldman Sachs (GS 0.01%) recently pointed out in a report, there's a huge gap between revenue and capital expenditure when it comes to AI. So it might not be fair to compare Bitcoin to high-flying AI stocks trading at frothy valuations.
Over the short to medium term, Bitcoin mining stocks may continue to outpace Bitcoin. But over the long haul, my money's with Bitcoin. For more than a decade, Bitcoin has been the top-performing asset in the world. Giving up on Bitcoin now might end up being a colossally short-sighted mistake.
