Well, first, a token is not a cryptocurrency. In its most simplified form, a token is a unit of exchange based on a fixed amount of data going in or out of an Artificial Intelligence model. These tokens are produced and used/spent by both AI agents, as well as human users, based on utilization of the computer power associated with running the AI. The computer power is generated within the data centers getting all the attention, and is shortened to the term “compute” when discussed within the context of the economics of AI business enterprises.

Eventually, at some point in the AI economic cycle, these tokens are exchanged for actual dollars based on factors associated with usage, and from what it seems like the “quality” of the compute used to generate them. From what I can tell, the token-to-dollar exchange occurs at the level of the end-user, which is to say the corporation or subscriber utilizing the AI model, or the software company providing tools and apps harnessing the AI. The dollar value of the token is ultimately based on the compute power used to process prompts and create output.

Confusing? Yes, it's confusing, but it's also a completely new type of currency system already operating within the AI world, and because most stock investors are heavily invested in AI, either through individual stocks or through index or mutual funds right now, it’s a concept I feel requires at least some level of understanding.

As I went into the token rabbit hole, I found myself reverting to parallels provided by my decades of investing experience. Sure, this token concept is new, but existing frames of reference seemed to apply, and some just don’t compute (pun intended).

Had I ever seen a financial model where units of output were being exchanged by economic agents (aka traders) based on underlying production metrics and activity occurring outside the direct control of the agents themselves? Well, yeah, to me it sounds a bit like commodities or futures markets based in agricultural or energy production. While futures markets are not part of my practice, I have certainly been aware of, and to some extent, a student of these markets for decades, which got me thinking.

Using basic economic logic, what if a producer of a commoditized output, say like oil, corn or even a newer product with an uncertain emerging market, poured $7 trillion of capital investment into increasing the production capacities for said product? Would this massive capital investment be likely to cause the fundamental market pricing of the eventual product, or output, to go up or down? My investing intuition doesn’t lead me to think “up.”

Now, don’t call me an AI skeptic. I believe AI will change the world, I’m just not sure how yet. The economics of AI, however, are already changing the future of investing, both in financial markets and in the real world. With most of us staking so much of our hard-earned savings on this future, it's important to understand the true economics underlying the excitement, and the token economics concept is giving me a bit of pause.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.

Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.