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(Bloomberg) -- Silicon Valley venture capitalists are racing to get into artificial intelligence companies including investors who once bet big on crypto.

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In the most recent quarter, VCs spent less on crypto and digital asset companies than at any point since 2020, according to data from the research firm PitchBook. At the same time, the total global value of investments in AI for the April-June period was higher than crypto even at its peak.

The numbers reflect the recent tendency of many tech investors even those who once backed crypto to move away from the scandal-plagued digital asset industry toward the latest advances in AI, said Robert Le, a crypto analyst at PitchBook.

New developments in AI have made it highly attractive to investors, at the same time as a barrage of scandals, new regulations and tumbling prices have made crypto toxic. Joe Zhao, Millennia Capital managing partner, said hes ready to leave digital assets behind. Zhao and Millennia once backed crypto companies like Blockstream and Lumida; now theyre diving further into artificial intelligence. Millennia has already invested in closely watched startups including Stability AI.

AI is offering so many more use cases than blockchain, Zhao said.

Some crypto investors have come under fire for kindling an interest in AI. Paradigm, the high-profile crypto VC firm started by Coinbase Global Inc. co-founder Fred Ehrsam and former Sequoia Capital partner Matt Huang, removed crypto mentions from its website and played up its interest in AI instead, crypto news outlet the Block reported in May. Huang tweeted this month that the website update had been a mistake and directed users to a new version of the companys homepage that includes moving neon green and black banners emblazoned with the word CRYPTO.

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Huang said in a tweet in June that both the crypto and AI sectors are interesting and will have plenty overlap and that Paradigm is excited to continue exploring.

Meanwhile, Sequoia Capital investor Michelle Fradin, who helped lead the firms decision to invest in now-bankrupt crypto exchange FTX, has recently tweeted more about AI than crypto. She also recently co-authored a piece for the firm titled, The New Language Model Stack: How companies are bringing AI applications to life. Sequoia did not respond to a request for comment.

Some investors believe there are ways to invest in both AI and digital assets. There is a lot of interest in the intersection of AI and crypto, Le said. He noted that two startups that straddle these industries Tools For Humanity, the developer of Worldcoin, and Gensyn both raised significant funding rounds during the second quarter.

AI and crypto are natural counterweights for one another, said Ali Yahya, a general partner at Andreessen Horowitz, which backed both Tools for Humanity and Gensyn. Crypto will will enhance AI by providing some of the decentralization that AI maybe needs, he said, noting that companies like OpenAI, Alphabet Inc.s Google and Microsoft Corp. have already amassed significant control over the growing industry.

The co-founders of Gensyn, Ben Fielding and Harry Grieve, said that they were more interested in machine learning than crypto prior to founding the startup. And now, despite being mainly backed by crypto venture investors, Gensyn sees itself as more of a technology infrastructure startup. We dont think of ourselves as a crypto project so to speak, Grieve said.

Gensyn is building a blockchain protocol that will underpin a decentralized marketplace for buying and selling compute power that can be used for machine learning models. Fielding said the platform could make the compute market more competitive, since the only suppliers are very, very large organizations who have amassed huge data centers and then rent them out.

Global AI venture funding was roughly flat in the second quarter from the year earlier, though there was a substantial uptick in investments in the US market. By contrast, in the same period, global investment for digital asset startups plunged 76% compared to the same period last year, PitchBook said.

Despite the drop, though, crypto deals are still happening. Le noted that crypto markets in Europe, Dubai, Hong Kong and Singapore are showing more strength than in the US, where regulation has hit the industry hard. He also said he expects to see crypto venture investing continue in the US and abroad, since many crypto funds have mandates that require them to back the space.

Andreessen Horowitz, which raised the biggest-ever crypto fund at $4.5 billion, recently announced that it was opening an office in London because of the UKs crypto-friendly environment. Yahya said the firm is still committed to investing in crypto startups, including through token rounds. We don't have any plans of slowing down, he said.

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Tech Investors Bet on AI, Leave Crypto Behind - Yahoo Finance