Tech » Cryptocurrency

AI in Crypto Trading: The Future of Investing?

Michael K. Gauthier | Updated On December 21, 2023

With the rise of making money with cryptocurrencies in recent years, they have become an attractive option for traders and investors alike. But, the volatile and complex nature of cryptos makes it hard for anyone to successfully navigate the market and make any meaningful profit.

For this reason, AI has emerged as a powerful tool to help us change how crypto trading is conducted.

In this article, we will discuss what AI is and how it can help us in the field of cryptocurrency trading as well as the challenges you might face while using AI for trading.

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What is Artificial Intelligence?

AI refers to the ability of a computer or robot controlled by a computer to do tasks that are usually done by humans because they require human intelligence and wisdom. AI algorithms can analyze very large amounts of data, identify patterns, and make decisions or predictions based on those insights.

AI Cryptocurrency systems can analyze market trends, identify potential trading opportunities, and execute trades quickly and accurately.

How Can AI Assist in Crypto Trading?

There are a number of ways that an AI can bring value to and provide value in the field of cryptocurrency trading.

One of the many advantages of using Artificial Intelligence in crypto trading is its ability to process and analyze large amounts of data with an effective 24-hour run time.  

This means that an AI can run 24/7 monitoring the crypto market conditions in real-time and make judgments based on patterns and data to make trades. This can potentially lead to it generating more profits than any human trader could generate.

AI systems can also incorporate machine learning (ML) algorithms, thereby allowing them to learn and adapt from their past experiences. These algorithms can analyze historical market trends and trade data to improve their market performance over time.

These algorithms can learn from their mistakes, make adjustments to strategies, and optimize trading decisions based on patterns and trends that have proven to be successful in the past.

The main function of AI is that it can enhance trading in a volatile market and reduce the human bias and emotion that is inherent in making trading decisions. Emotions like fear and greed are often the cause of misjudgments by many traders. 

This can include buying a coin or token after a serious bull run of a token due to FOMO (Fear of Missing Out) and then selling immediately when the price starts collapsing.

As data and algorithm-driven AI-based systems, they do not have any emotion and are out of the influence of other people’s judgment. 

This means that an AI tool can make objective and rational decisions based on predefined criteria so that it can generate more consistent trading strategies.

Another major role of AI is in the automation of the trading process to earn cryptocurrency. AI algorithms can be programmed beforehand to execute trades automatically based on predefined markers and indicators thereby eliminating the need for any human involvement. 

This removes human emotion, hesitancy, or error from the trading equation and allows the traders to take advantage of opportunities around the clock.

Automated AI systems can place trades faster than any human counterparts responding to market movements instantly. This can be particularly advantageous in the fast-moving Crypto market.  

DID YOU KNOW?
In 2023, 78% of market trades were performed by trading centers that depend on automated systems and algorithms.

The Challenges of Using AI in Crypto Trading

It is important to note that using AI systems does not guarantee any success in crypto trading. The market is highly volatile and unpredictable, and there are many risks associated with algorithmic trading. Some of these risks may include:

• Technical Complexity: Implementing AI requires us to have technical expertise and infrastructure. Developing and maintaining algorithms, data processing, and dependable trading systems can be complex and costly.

• Over-optimization: AI algorithms can be highly customized to fit historical data but then fail to perform well on new or unseen data patterns. This in turn can create false signals and result in losing money. AI algorithms must be designed and tested thoroughly to make sure that they are dependable and can handle any market condition effectively.

• Volatility and Uncertainty: The uncertain nature of the crypto market may create challenges for AI algorithms. An algo can struggle to adapt to sudden price swings or unexpected events, thus resulting in losses. If the systems are not properly calibrated or just rely on historical data alone, they can make inaccurate decisions and naked false judgments during trades.

• Dependence on Data Quality: As AI relies on data quality and availability, any inaccurate, incomplete, or false data can have a devastating effect on its performance. 

  In crypto trading, specifically where data is prone to be manipulated, it becomes very important to make sure that algorithms are trained using accurate and reliable data to minimize any false judgments or trading decisions.

• Lack of Humanity: AI is a pro at data analysis and pattern recognition and it also lacks human judgment and intuition. While this can be an advantage in limiting irrational decision-making, there are some factors that AI may fail to grasp. 

  Human traders bring experience, expertise, and the ability to assess sentiment and news events which can affect future trading decisions. Relying entirely on AI can oftentimes lead to flawed decision-making and missed opportunities.

• Regulatory and Legal Concerns: AI introduces additional complexities in regard to crypto regulations. AI systems must comply with the local laws, regulations, and guidelines associated with algo trading, data privacy, and market manipulation. Failure to comply can oftentimes result in legal consequences and reputational damage.

Also Read: Ways to Create Cryptocurrency

Conclusion

Artificial Intelligence has brought in a revolution in the world of crypto trading. Traders can now leverage AI to take advantage of the volatile market and make huge profits. 

While AO offers advantages, it is necessary to be aware of its flaws and use it alongside other trading tools with proper risk management strategies.