Exclusive: Pro Report on Bittensor

GM, after you’ve had a chance to read our latest report on TAO please take a moment to answer the poll at the bottom. It would help us out a ton! If you aren’t subscribed and like what you see hit the subscribe button below to sign up for our free weekly newsletter. As always, thanks for reading!

Table of Contents

• Company Overview

• Investment Thesis

• Bullish Case for Bittensor ($TAO)

• Price Projection for TAO in the Current Bull Cycle

  • Pro Report Poll

• Appendix 1: Detailed Tokenomics Breakdown

• Appendix 2: Growth of Bittensor Network Participan …

• Appendix 3: Valuation Comparisons with Similar AI …

Executive Summary

Bittensor is a decentralized machine-learning marketplace designed to solve scalability and innovation inefficiencies in AI development. Its unique tokenomics and decentralized framework aim to transform the machine-learning industry by providing an open marketplace for the creation, sharing, and monetization of AI models. The protocol’s use of a decentralized neural network (the "Decentralized Mixture of Experts") enables AI models to collaborate and improve by sharing intelligence. Bittensor has strong potential for future adoption by large tech companies and decentralized AI projects. However, challenges related to scalability, regulatory concerns, and token volatility present potential risks.

Company Overview

• Business Model: Bittensor is focused on decentralizing access and training of AI models. It addresses two major issues in AI development: the compute bottleneck and algorithmic inefficiencies. By creating a peer-to-peer marketplace where AI models can collaborate and be rewarded, Bittensor democratizes AI training that was previously limited to large institutions.

• Industry Positioning: Bittensor operates at the intersection of blockchain and artificial intelligence, targeting sectors such as decentralized AI, cloud computing, and data marketplaces. By enabling composability across AI models, Bittensor introduces a new paradigm for AI infrastructure.

Financial Overview

• Token Supply: The total supply of Bittensor’s native token, TAO, is capped at 21 million, mirroring Bitcoin’s deflationary model. TAO tokens are earned by AI model contributors and are used as the unit of exchange within the network​

• Market Capitalization: As of the latest data (Sept 2024), Bittensor's market cap stands at approximately $4 billion​

• Token Emission Model: Bittensor follows Bitcoin’s halving model, reducing token emissions by 50% roughly every 5 years, which is intended to foster long-term value retention for early participants​

Revenue Generation: The Bittensor network rewards AI model contributors with TAO based on the value of the intelligence they add to the ecosystem. It generates value through the training of models across various subnetworks, where miners, validators, and users interact and contribute computational resources​

Valuation

Bittensor’s current valuation is difficult to assess using traditional financial metrics, given the early-stage nature of the project and the volatility of its native token, TAO. However, several factors drive its valuation:

• Comparable Projects: Comparable AI blockchain projects include SingularityNET (AGIX) and Fetch.ai (FET), which are also focused on decentralized AI but with different incentive structures and ecosystem designs. We expect TAO to outperform these other projects. 

• Valuation Methodology: Since Bittensor's value is driven by the utility of its decentralized machine-learning marketplace, a network effect valuation model could be appropriate, focusing on growth in network usage and participation by AI developers, researchers, and businesses.

• Token Velocity and Adoption: Given the high price volatility of TAO, traditional methods like discounted cash flow (DCF) are impractical. Instead, network participation growth and token liquidity are critical drivers of valuation​

Investment Thesis

• Catalysts:

  • Growing demand for decentralized AI models as corporations like Google and OpenAI face cost inefficiencies and scalability issues​

  • Increasing interest in AI-powered blockchain solutions, with Bittensor positioned as a leader in decentralized AI training.

  • Potential for partnerships with tech giants looking for scalable AI training solutions, such as IBM or Microsoft​

  • Fair launch tokenomics. 0 TAO were allocated to anyone other than those who participated in the network. This is similar to Bitcoin. No investors, VC’s, insiders or advisers were allocated any TAO.
    

Risks:

• High volatility in TAO’s token price, which is sensitive to market sentiment.

• Scalability issues in subnet performance could hinder growth in the short term as the platform scales.

• Regulatory challenges in key markets as governments scrutinize blockchain-based AI projects.

Financial Projections

At this stage, projecting specific financial metrics for Bittensor is highly speculative due to the decentralized nature of the network and the variable value of the TAO token. However, with the ongoing growth of the AI sector and decentralized computing, Bittensor is likely to experience significant demand for its network services over the next 2-5 years. Coupled with macro economic tailwinds that are currently present we are highly bullish on TAO price appreciation over the next 2 years. 

• Revenue Growth: Projected increase in TAO demand as more AI models are trained and deployed on the platform.

• Token Supply Constraints: With a 21 million cap on TAO, scarcity dynamics similar to Bitcoin could drive token appreciation as network usage grows.

• Global Liquidity: flows will trickle down the risk asset chain to TAO which is positioned in the AI narrative and the leading project in that space. 

Risks

1. Token Volatility: The TAO token is subject to significant price swings, driven by both internal factors (like network development) and broader market sentiment in the AI and crypto sectors.

2. Regulatory Scrutiny: As governments begin regulating AI and blockchain more closely, Bittensor could face compliance challenges, particularly in countries with strict data privacy laws. We believe this risk will be diminished if Donald Trump win the US Presidential Election

3. Network Security: Decentralized networks are vulnerable to exploitation, as seen in recent exploits within other blockchain ecosystems. Ensuring robust security for the Bittensor protocol is crucial​

Bullish Case for Bittensor ($TAO)

1. Tokenomics: Fair Launch, Halving Schedule, and Long-Term Value Proposition

Bittensor’s tokenomics are designed for long-term value appreciation and scarcity. First, the project had a fair launch, meaning there were no private sales or early access for insiders, ensuring an equitable distribution of tokens. This is critical for decentralized projects like Bittensor, as it fosters trust and creates a level playing field for participants. Unlike many crypto projects where insiders dump their tokens post-launch, Bittensor’s team had to mine their own tokens alongside the rest of the community.

Bittensor follows a Bitcoin-style halving model, where token emissions are halved every 5 years. This capped supply of 21 million TAO, combined with decreasing emissions over time, creates a scarcity-driven token model that is similar to Bitcoin's. As the supply of new TAO tokens dwindles, the intrinsic value of the tokens is expected to increase, especially as demand from network participants grows.

Moreover, Bittensor’s staking incentives reduce sell pressure by encouraging participants to lock up their TAO in exchange for rewards. Miners, validators, and users can all earn rewards by contributing to the ecosystem, and the more they stake, the more they are incentivized to hold rather than sell their tokens. This reduces the available circulating supply in the market, further bolstering the token’s price.

2. Subnets and Buy Pressure for TAO

Bittensor’s unique subnets are self-contained economic markets designed to cultivate specific forms of machine intelligence, such as text generation, image processing, or data scraping. Each subnetwork incentivizes miners (who provide AI models) and validators (who rank the quality of the models) with TAO rewards, creating a competitive environment where the most valuable models earn the most rewards.

This incentive model fosters continuous innovation and model improvement, as AI developers compete to provide the best solutions. What’s key here is that users who want to utilize these AI services must buy TAO to access the subnetworks, creating buy pressure for the token. As more subnetworks launch, demand for TAO will rise exponentially, especially as Bittensor becomes a go-to platform for decentralized AI training and knowledge sharing. This dynamic, where AI model creators are incentivized to hold TAO and users need to buy TAO to participate, results in a positive feedback loop that drives up the token’s value.

3. The AI Narrative and Bittensor’s Strategic Positioning

The AI narrative is one of the most powerful themes driving the current tech and crypto markets. As corporations and institutions invest billions into artificial intelligence, blockchain-based AI solutions are gaining traction as a decentralized alternative to centralized AI monopolies (e.g., Google, OpenAI). Bittensor is perfectly positioned to capitalize on this growing demand for AI solutions because it solves two critical problems:

1. The high costs associated with AI model training.

2. The siloed nature of centralized AI models, which do not share knowledge or insights.

Bittensor’s decentralized machine learning marketplace allows AI models to collaborate and build upon each other, creating a compounding effect in AI innovation. This positions Bittensor to benefit from the explosive growth of AI as a sector, much like how blockchain benefited from the growth of decentralized finance (DeFi) and NFTs. As AI continues to become a critical part of every industry, decentralized AI infrastructure like Bittensor will become increasingly essential, creating long-term demand for TAO.

4. Ecosystem Growth and Value Creation

Bittensor’s ecosystem growth is driven by the incentivization of AI developers, users, and validators. As more developers recognize the value of contributing AI models to a decentralized platform, Bittensor will see an influx of new talent and innovation. This will attract more users seeking access to advanced AI solutions, further driving demand for TAO.

Moreover, as Bittensor’s ecosystem expands, it will likely see partnerships with tech giants, academic institutions, and research labs that are seeking cost-effective, scalable AI infrastructure. Bittensor’s peer-to-peer marketplace will serve as the backbone for future AI innovation, where corporations and developers alike can access the largest decentralized neural network in the world.

The value creation comes from the unique ability to monetize AI contributions. Unlike centralized AI companies that require massive resources to build models from scratch, Bittensor allows developers to sell their AI models and knowledge on an open market. This creates a self-sustaining economy where contributors are continuously incentivized to create value, leading to the network’s growth and further increasing the demand for TAO.

As more subnetworks launch and more participants join the ecosystem, the value of Bittensor will grow exponentially, creating a flywheel effect where demand for AI models drives token utility, which in turn drives ecosystem growth and token appreciation.

Price Projection for TAO in the Current Bull Cycle

Market Context

To project price we take a mid-range conservative approach based on a number of assumptions. We assume the total crypto market capitalization will peak at $10 trillion during the next bull cycle. We also assume Bittensor ($TAO) breaks the top 10 by market cap (currently at #28) and that Bittensor will capture 1% of the total market cap, aligning it with other strong but smaller projects within the blockchain space. This would give Bittensor a market cap of $100 billion at the peak of the cycle (for reference Cardano reached this market cap with essentially no product last cycle).

Circulating Supply and Price Calculation

The circulating supply of TAO is expected to be 7.5 million tokens at the peak of the cycle. Given the capped total supply of 21 million, a circulating supply of 7.5 million keeps the available TAO in circulation relatively scarce, reinforcing a favorable supply-demand dynamic.

Using the following formula:

Price of TAO = Bittensor Market Cap / Circulating Supply

The estimated price of TAO under this scenario would be:

Price of TAO = $100 billion / 7.5 million = $13,333 per TAO

TAO Price Projection: Peak of the Bull Cycle

• Projected Market Cap of Bittensor (TAO): $100 billion

• Projected Circulating Supply: 7.5 million TAO

• Price of TAO at Peak: $13,333 per TAO

Key Catalysts Driving TAO's Price

• Increased Demand for AI Models: Bittensor’s decentralized marketplace for AI training will drive demand as AI becomes more integrated into various sectors. With Bittensor’s subnet eco system and the coming introduction of smart contracts in that eco system we should see a thriving economy similar to ETH’s. 

• Supply Constraints: With a maximum supply of 21 million TAO and staking incentives locking up a significant portion, circulating supply will remain tight, contributing to price growth.

• Adoption of Decentralized AI: As decentralized AI becomes a cornerstone of blockchain technology, Bittensor is positioned to capture a significant share of the market, even with a conservative 1% allocation of the total crypto market cap.

Under what we consider to be a mid-conservative assumption, Bittensor still represents a compelling investment opportunity, with a projected price of $13,333 per TAO at the peak of the next bull cycle. This projection balances the significant growth potential of decentralized AI with a mid range cautious approach to market positioning.

Conclusion

Bittensor represents a groundbreaking innovation in decentralized AI and blockchain technology, offering significant potential upside in the long run. Its unique tokenomics and decentralized structure could make it a major player in AI development. However, investors should be mindful of the inherent risks, including token price volatility, regulatory uncertainty, and network scalability challenges. Given the project’s early stage, we recommend a strong BUY for investors seeking exposure to cutting-edge decentralized AI with a high risk-reward profile. We anticipate TAO 1breaking into the top 10 tokens by market capitalization during this cycle. Even if our projection falls short by 50% that still represents a 10x opportunity from here.

Appendix

1. Detailed Tokenomics Breakdown

2. Growth of Network Participants (Historical Data)

3. Valuation Comparisons with Similar AI Blockchain Projects

Appendix 1: Detailed Tokenomics Breakdown

Total Token Supply

• Maximum Supply: 21 million TAO tokens, mirroring Bitcoin's fixed supply structure. This scarcity model is designed to create long-term value for token holders through deflationary pressure as demand increases.

• Circulating Supply: As of September 2024, approximately 7.38 million TAO tokens are in circulation​

Emission Schedule

• Halving Mechanism: TAO follows a halving model similar to Bitcoin, where the block reward for miners is reduced by 50% approximately every 5 years. This mechanism is intended to gradually reduce the influx of new tokens into the market, increasing scarcity and potentially driving up demand over time​

• Current Block Reward: The current reward for miners is based on the TAO halving schedule. Details of the block reward can vary based on network conditions and participation rates

​

Token Distribution

• Mining Rewards: Bittensor employs a Proof-of-Intelligence (PoI) model, where contributors (miners) are rewarded in TAO based on the value of their machine learning models. Validators also receive rewards for accurately ranking and validating these contributions​

  • Miners: Off-chain nodes that perform machine learning tasks for the network and are rewarded based on the quality of their output.

  • Validators: Nodes that validate the performance of the miners and assign rankings, affecting the TAO rewards received by each miner.

• Founders & Team Allocation: Unlike traditional blockchain projects, there was no pre-sale or private token allocation for the Bittensor founding team. All participants, including the team, had to mine their tokens, creating a more equitable distribution model​

Utility of TAO Tokens

• Transaction Fees: TAO tokens are used for paying transaction fees within the network. As with other blockchain ecosystems, these fees compensate for the computational resources required to validate and process transactions.

• Incentives for AI Model Providers: Contributors to the Bittensor network, specifically AI model developers, are rewarded in TAO based on the value their models provide to the network. This incentivizes continuous improvement and development within the ecosystem​

• Access to AI Services: External users, including companies and developers, must pay in TAO to access the AI models and computational resources on the Bittensor network. This creates a demand cycle for the token as businesses looking to leverage decentralized AI must purchase TAO to utilize the network’s resources​

• Staking: Holders of TAO can stake to receive a portion of the validator rewards. Currently staking rewards are around 18% APY but can vary based on a number of variables. 

Monetary Policy

• Deflationary Design: With its fixed supply and halving schedule, TAO follows a deflationary monetary policy that aims to increase token value as network demand grows and token emissions slow down over time.

• Burn Mechanism: In response to certain events, such as network exploits or inflationary pressures, Bittensor has introduced a token burn mechanism to further control supply and stabilize the token's value​

Liquidity & Exchange Listings

• Market Availability: TAO is actively traded on several crypto exchanges, providing liquidity to token holders. However, due to the token’s relatively niche market, liquidity may vary depending on the platform. It is worth noting that as of now it is not listed on any tier 1 exchanges. Larger exchange listing will act as a bullish catalyst bringing more liquidity into the TAO market causing subsequent upward price action. 

• Market Capitalization: As of the latest data, Bittensor’s market cap is approximately $4 billion, reflecting its growing adoption and increasing investor interest in decentralized AI solutions​

Governance

• Decentralized Governance: TAO token holders have the ability to vote on key governance issues within the Bittensor network, including updates to protocol rules, changes in tokenomics, and other critical decisions. This governance model ensures the network remains decentralized and community-driven​

This tokenomics structure positions TAO as both a utility and a store-of-value token within the Bittensor ecosystem, with long-term incentives aligned with its decentralized AI marketplace vision.

Appendix 2: Growth of Bittensor Network Participants (2020-2024)

The growth of participants in the Bittensor network has been significant since its launch. Below is a breakdown of the historical data for key participant categories including active miners, validators, and active users from 2021 to 2024:

Key Trends:

• Active Miners: There has been a steady and exponential increase in the number of miners to 7,000 in 2024. This reflects the growing interest in the network as participants compete to provide AI models and earn TAO tokens.

• Validators: Validators have grown from a small base to 3,500 in 2024, as more participants take part in the crucial task of verifying and ranking the work of miners.

• Active Users: The number of users accessing the network for AI services has grown significantly, reaching 10,000 in 2024, indicating a surge in demand for decentralized AI models and services.

The chart above visualizes the significant growth across all categories of network participants over the past five years.

Appendix 3: Valuation Comparisons with Similar AI Blockchain Projects

To understand Bittensor's valuation in the broader AI and blockchain space, it's useful to compare it with other prominent AI-focused blockchain projects. Below is an analysis of some key competitors, primarily Artificial Superintelligence Alliance (FET), which is a leading decentralized AI platforms that share similarities with Bittensor in terms of goals, market position, and technological approach.

Artificial Superintelligence Alliance ($FET)

• Market Capitalization: $4 billion (as of 2024)

• Project Overview: Artificial Superintelligence Alliance (ASA), also known by its token symbol $FET, focuses on building a decentralized digital economy powered by autonomous AI agents. These AI agents are designed to perform complex tasks such as data sharing, decision-making, and autonomous machine-to-machine communication, with applications across industries like supply chain management, smart cities, and decentralized finance (DeFi).

• Valuation Drivers:

  • Autonomous AI Use Cases: ASA has been successful in developing and deploying autonomous agents that facilitate real-world applications such as decentralized marketplaces and smart contracts.

  • Network Activity & Utility: $FET tokens are used within the ecosystem to power AI-driven services and facilitate transactions between autonomous agents, leading to steady growth in network usage.

  • Partnerships & Ecosystem: ASA has established strategic partnerships with academic institutions and industry leaders, which has helped expand its ecosystem and attract more developers to build on its platform.

Bittensor (TAO)

• Market Capitalization: $4 billion (as of 2024)

• Project Overview: Bittensor distinguishes itself from ASA with its focus on decentralized AI training and knowledge sharing. Rather than emphasizing autonomous agents, Bittensor creates a peer-to-peer marketplace where machine learning models collaborate, train, and improve by sharing intelligence. Contributors are rewarded with TAO tokens based on the value their AI models provide to the network.

• Valuation Drivers:

  • Decentralized AI Training: Bittensor offers a unique Proof-of-Intelligence (PoI) model, where contributors (miners) are rewarded for the informational value of their AI models. This incentivized marketplace positions Bittensor as a scalable solution for AI model development and collaboration, making it attractive to companies looking to reduce AI training costs​

  • Tokenomics: TAO’s deflationary model, with a total supply of 21 million tokens and periodic halving events, drives long-term scarcity. This is in contrast to $FET, which has a larger token supply of 1.15 billion. TAO’s Bitcoin-like tokenomics could lead to more sustained value appreciation as network participation grows​

  • Niche Market Leadership: While ASA focuses on a broad spectrum of AI applications, Bittensor’s concentrated focus on collaborative AI training sets it apart in the decentralized AI space, particularly for developers and researchers aiming to tap into a large-scale, decentralized AI network​

Valuation Comparison Chart

Key Takeaways

1. Focus on AI Training vs. Autonomous Agents: While ASA focuses on autonomous AI agents executing tasks in decentralized economies, Bittensor targets the decentralized training of AI models, a more niche but critical function within the AI industry. Bittensor’s unique marketplace for AI collaboration may have broader implications for AI scalability and innovation.

2. Higher Market Cap & Scarcity: Bittensor’s market capitalization is similar ($4 billion) however it reflects an organic growth. The FET market capitalization is less tested as it is still going through price discovery after its 3-way merger with AGIX and OCEAN. Its focus on creating a large-scale decentralized infrastructure for AI development. Its scarcity-driven tokenomics (21 million total supply) positions it for potential long-term value appreciation, especially as demand for decentralized AI solutions increases.

3. Long-Term Potential: Both projects are positioned well for future growth, but Bittensor’s focus on AI collaboration and training may offer a more scalable and widespread solution to one of the core challenges in AI development: the compute bottleneck. Its unique incentive structures creating heavy competition between its subnets also positions it to benefit greatly from a highly competitive ecosystem. 

This direct comparison highlights the distinct approaches taken by Bittensor and ASA, with Bittensor's specialized focus on decentralized AI training giving it a unique position in the AI and blockchain landscape

DISCLAIMER: None of this is financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.