Could AI Hold the Key to Help Revolutionize Cryptocurrency Trading?

<p>Widespread consumer and organizational adoption of Artificial Intelligence (AI) has caused quite public and now more recently, governmental outcry to pause further development of AI-based models and tools, as experts warn of the <a href="https://www.nytimes.com/2023/05/01/technology/ai-problems-danger-chatgpt.html" target="_blank" rel="follow">potential danger</a> these technologies can hold for humanity. </p><p>Since the public launch of OpenAI’s ChatGPT onto the consumer landscape in November last year, machine learning technologies and language processing models have skyrocketed in popularity, finding a place in nearly every economic sector. </p><p>Now, as organizations find themselves at the brink of the AI revolution, using digital systems to replace mundane tasks, improve productivity and lower the potential of human error; cryptocurrency traders are fast approaching the intersection of where advanced technological models meet the digital asset market. </p><p>The crypto market is at a turning point </p><p>From the outside, it may seem as if the last several months have been quite the tumultuous endeavor for crypto investors, as they navigate several economic challenges, against the backdrop of growing regulatory reform. </p><p>In an attempt to mitigate potential risks for traders, investors, and businesses following the collapse of the global crypto exchange platform, FTX, lawmakers on both sides of the political spectrum have been pushing to <a href="https://www.globallegalinsights.com/practice-areas/blockchain-laws-and-regulations/15-u-s-sanctions-and-cryptocurrency-recent-developments-and-compliance-considerations" target="_blank" rel="follow">introduce regulatory policies</a> that could further tame the ‘wild west’ of the digital assets market. </p><p>While the U.S. might be falling slightly short of their ambitious tasks to formally regulate crypto, in other parts of the world such as the <a href="https://www.theguardian.com/technology/2023/may/17/cryptocurrency-trading-in-uk-should-be-regulated-as-form-of-gambling-say-mps" target="_blank" rel="follow">United Kingdom</a> and the <a href="https://www.consilium.europa.eu/en/press/press-releases/2023/05/16/digital-finance-council-adopts-new-rules-on-markets-in-crypto-assets-mica/" target="_blank" rel="follow">European Union</a>, new legislation could mean that crypto transactions and perhaps a large portion of the decentralized finance (DeFi) market could come under the watchful regulatory eyes of domestic legislative branches. </p><p>There’s been good cause for concern, especially since one of the world’s biggest crypto exchanges filed for bankruptcy late last year, causing a contagion of problems to spread into other parts of the DeFi industry. </p><p>Now with several legislative branches putting red tape on the once-beloved decentralized ecosystem, and hoping it could bring better stability to the overall global market, which <a href="https://techcrunch.com/2023/01/05/crypto-losses-in-2022-dropped-51-year-on-year-to-4b/" target="_blank" rel="follow">lost more than $4 billion</a> in market value last year, experts are hopeful that the intricate relationship between AI and cryptocurrency could mean a new era for digital assets.</p><p>A relationship in its infancy </p><p>There’s still much we need to learn about the connectivity between AI and DeFi could bring effective changes to crypto transactions, and the coexistence thereof would hold the potential of lowering fraud in the decentralized environment. </p><p>Until now, AI has largely been utilized to help captivate audiences with rapid-fire deep machine-learning processing. The most obvious use case is perhaps the recent launch of ChatGPT by OpenAI, a large language processing model that is used for conversational applications. </p><p>While the application remains a proprietary near-term model, further developments could help both investors and traders use these applications as plug-in sources that could help broaden their strategic trading approach to the ever-fluctuating crypto market. </p><p>By combining AI, big data, and cloud computing, investors and traders will have the opportunity to develop more accurate prediction models and understand market behavior more accurately based on historical data. </p><p>Already there have been a handful of companies that have introduced AI and several branching digital systems that assists them in developing AI-based solutions for their crypto and digital asset business operations. </p><p>Elsewhere, TradeConnect, the multi-asset trading network which helps to connect crypto traders with other public financial markets have been using machine learning algorithms as a way to help users find the most suitable brokers and banks for their transactions based on their need to transact using digital currencies such as Bitcoin (BTC), Ethereum (ETH) and stablecoins such as Solana (SOL), among others. </p><p>While these and other real-world applications make up just a fragment against the bigger AI and crypto landscape, it could however bring new opportunities to the forefront in the coming years, as it would enable a larger cohort of investors, traders, and international businesses to transact more seamlessly. </p><p>It’s possible that AI could remove the friction between crypto traders and businesses, more so, it would help <a href="https://www.financemagnates.com/fintech/payments/the-role-of-artificial-intelligence-in-streamlining-payment-processes/" target="_blank" rel="follow">streamline end-to-end transactions</a> even further. However, limitations on both ends of the spectrum could mean that the relationship between AI and crypto could remain in its current capacity for some time longer. </p><p>Understanding the possibilities </p><p>As with anything these days, we’re certain that using AI models in the broader crypto world could hold a near-endless list of possibilities. We’ve already seen how traditional language processing models have enabled businesses to help improve the overall crypto trader experience, simply by harnessing the technology that’s available within their capacity. </p><p>Looking beyond this, we could see a rise in new opportunities, which could ultimately transform the future of the crypto landscape. </p><p>User efficiency </p><p>As a starting point, we’ve already witnessed how AI helps to improve online customer efficiency with language models such as ChatBots assisting customers with queries on websites, and AI algorithms help retrieve accurate data based on customer demands. </p><p>However, within the crypto market, similarities of this exist, providing high-speed analysis of market data and information. Implementing these systems would mean that information on market trends or news could be processed faster, helping traders make more informed decisions, and support their strategic activity based on cumulative market data. </p><p>In the perfect world, this would mean that at any instant, traders can simply tap thousands upon thousands of data sets, without having to sit and work through it manually. Instead, AI manages these data sets and delivers accurate information based on trader prompts. </p><p>Improving decision-making techniques </p><p>Without the need for human interaction, especially on the trading floor, AI helps to remove human bias and emotion from day-to-day trades, by firmly establishing a purely data-driven decision-making strategy. </p><p>Instead of relying on emotional bias, crypto traders will no longer be swayed by their human abilities, meaning that analysis of relevant data will become increasingly important among investors and traders. </p><p>While AI helps lower potential risks of human error and emotional bias and could mitigate losses, it remains within the interest of investors and traders to build strategies that firmly hold true to their investment goals.</p><p>Having an unbiased and emotionless support system within the trading room ensures that traders could conduct more accurately calculated decisions, within different market scenarios, by also helping learn different techniques that could make informed entry and exit strategies. </p><p>Adapting to markets in real-time </p><p>Another stepping stone for AI and crypto is the possibility of learning from real-time market data and adjusting crypto strategies as scenarios develop. This would mean that instead of investors and traders having to hold off on specific entry and exit points, they can now more appropriately use real-time events to make more informed trading decisions. </p><p>Perhaps one of the best examples of this being used in the real world is with companies such as Kryll.io, which offers users AI-powered tools that automatically help them to refine their trading activities based on both historic and real-time market information.</p><p>What this would mean is that as situations unfold, whether it’s economic fluctuations due or geopolitical tensions, BTC or <a href="https://www.kraken.com/prices/xrp" target="_blank" rel="follow">XRP price</a> making sporadic moves due to companies selling off the majority of their crypto holdings, or any pre-historic data that could impact present trading events, investors will have the ability to understand how these complex patterns could influence their trading strategies both near and long-term. </p><p>A mix of different possibilities could mean that in the coming years, if not months, crypto investors and traders could make more informed trading decisions, without having to rely on emotional bias or outdated data sets. Instead, leveraging the power of AI could help them make more profitable trades, and improve their performance, that is if they can properly guide themselves through the layers of complex data sets captured by AI. </p><p>Understanding the challenges </p><p>While many things seem possible, even in the current stage where companies, from investment banking to hospitality and tourism, to marketing are now leveraging the power of AI for improved business performance – underlying risks are often masked by the euphoric possibilities these digital systems hold. </p><p>Over-reliance </p><p>Instead of resolving problems yourself, or coming up with real-world solutions, <a href="https://theacademic.com/the-consequences-of-enslaving-ai-entities/" target="_blank" rel="follow">traders could become over-reliant</a> on Artificial Intelligence. Finding the balance would mean that crypto traders and companies will need to understand where AI can be an efficient replacement, and where human interjection might be more necessary. </p><p>Within the DeFi ecosystem, it can be hard to not rely on powerful AI systems and data processing models. However, reliance means that investors are not completely without risks, and lower levels of human intervention could mean that transactions or trades could go unchecked. </p><p>Unforeseen risks </p><p>Remember the “Flash Crash” of 2010, not even the most seasoned investors and investment bankers could’ve seen that coming, and yet, even at the time, when we already had technology well integrated within our economic activity, unforeseen market circumstances resulted in massive losses for even the most prepared traders. </p><p>We can draw the same understanding within the AI and crypto sphere, although the technology can accurately predict potential future models based on prehistoric data, it doesn't annihilate the potential of unforeseen risks. </p><p>Regardless of what data may be available, or how much algorithmic testing is done on AI models, there are still unforeseen changes that could happen at any given moment, leaving investors and traders puzzled as to how they could’ve missed these crucial elements.</p><p>Effective application </p><p>Then there’s the effective application problem, and this is something that crypto traders might encounter if they are unable to grasp the intricacies of Artificial Intelligence and the appropriate application of models within their scope of trading. </p><p>What it boils down to is that not all crypto traders will have the same level of competency, understanding, or trust in AI models, meaning that application within the broader spectrum of DeFi investing remains only half as effective. </p><p>This is not a fault on traders’ end, but rather the fact that AI systems are largely complex, and can be hard to understand, for even the most well-versed experts, some AI models become increasingly difficult to understand. This will only become a bigger problem in the long run, as these models become more advanced and consume large amounts of data.</p><p>The road forward </p><p>There’s a juxtaposition between Artificial Intelligence and crypto, and even more when we start considering the scope of decentralized finance. While AI holds the ability to help revolutionize the way crypto investors and traders operate, there remain several unanswered issues that could make widespread applications unsuccessful. </p><p>However, we shouldn’t disregard how AI has already helped transform not only ordinary systems but how it can become a powerful tool that can assist crypto traders to be more informed, lower their market risks, and mitigate unprofitable trades. Using real-time and on-demand data, traders are more informed about market conditions as they enter and exit at different intervals.</p><p>Loong forward, it’s clear that AI has already left a mark on the wider crypto market, but it still requires improvement if it stands to become one of the most influential elements of the decentralized finance industry. </p><p>While AI could hold a key solution for the crypto market, we’re still only scraping the surface of endless possibilities, only this time, we’re faced with different challenges which we still need answers for. </p>

This article was written by FM Contributors at www.financemagnates.com.