The ability of AI and machine learning to revolutionize the way we trade has always been a matter of research. But now as we have entered the crypto era and started trading digital currencies, the significance of AI in trading is more than ever.
Amongst the projects and experiments being run worldwide regarding the applications of AI in crypto trading, some have proven to be very revealing about the ways AI can help improve the overall trading industry, especially the way crypto trading works.
If experts are to be believed, AI can bring a number of
advantages to crypto trading, including the deeper analysis of historical data,
use of advanced algorithms for making predictions based on research, studying
the market for changes, among other things.
Besides these, here are some other major ways in which AI is disrupting the future of cryptocurrency trading.
1. Computer
algorithms for trading
The use of computers in the trading market is not new.
However, in the past couple of years, the percentage of trading through
computer algorithms has drastically increased to more than 50%.
This is even more common in the trading of cryptocurrencies,
as everything else is digital, so no one wants to trade manually any longer.
It is obvious that trading through AI-based, smart
algorithms is faster and more efficient compared to human-based trading and
results in fast-decision making, which is crucial for the cryptocurrency
trading sector.
2. AI for analysing
data and making predictions
The use of advanced technologies such as artificial
intelligence and machine learning for analysing the market data, past trends
and trades and providing actionable insights for future predictions is now more
common than ever.
Projects like Cowrium (Stability AI) are doing amazing things in this area by providing traders with easy and actionable investment advice based on the study and analysis of historical market data, trends, etc. for fast decision making.
3. AI for filtering
through zettabytes of data
The amount of digital data is now in zettabytes, which means
we have more digital data than we can ever store or use or parse through by
natural means.
AI is probably the only technology available to humans that
can not only filter through these vast amounts of data but also help us
understand and make use of it in a way that makes sense. If not for AI, it
would have been too complex to understand this data, let alone make any useful
financial/trading decisions based on it.
There are a number of trading markets, including some crypto trading platforms, that are already using AI and machine learning for help with the overall decision-making process.
Research reveals that AI hedge funds deliver
better performance over a period as compared to traditional and manual funds.
There are a number of businesses that are making use of AI
in the hedge fund market for analysing the trends and providing better insights
for decision making. While some of these fund managers are only using partial
features of AI, others have gone full-AI for trading as well risk-management in
their funds.
5. AI Neural Networks
for analyzing marketing efficiency
According to a study that involved the use of Artificial
Neural Networks for analysing the performance of various markets and
identifying those with weak performance, the use of AI in the investment
strategy can drastically improve the efficiency and results.
The said study involved testing of the applications of
neural networks for analysing the historical market data and predicting the
future returns and rates based on the findings. The study was immensely
successful, as the use of neural networks helped generate predictions for the
future year based on the data of the previous some years. And the produced
results were even better than the average results of buy-and-hold portfolios.
6. Identifying market
irregularities
For some years now, AI and machine learning are being used
by organizations worldwide for studying market irregularities and changes such
as acquisitions that are yet to happen and other things that may somehow
manipulate the market.
A reputable asset management company reportedly used
sophisticated genetic machine-learning systems based on AI to predict a number
of acquisitions before they were even published, thus making significantly
higher returns. AI algorithms reportedly tracked insider trading signals that
enabled them to predict these acquisitions.
By being able to identify irregularities, crypto fund
managers all around the world can better estimate market manipulations such as
upcoming acquisitions and adjust their portfolios accordingly. Projects like RoninAi are successfully using AI algorithms
to predict cryptocurrency market manipulations based on changes in social
sentiment indicators.
7. Prone to financial
turmoils
Multiple studies suggested that artificial intelligence
algorithms are able to assist with profitable investment decision-making not
just in normal times but also they perform well at times of financial
disorders.
The organization that was a part of this study managed to
make significant profits with the use of AI algorithms, of which most profits
were made during the times of financial trouble. This indicates that neural
networks are able to provide significant insights even when the market is not
doing so well.
Even though the study was performed in standard cases on
traditional funds, the same results are expected for digital currencies and
funds as well. The use of AI neural networks can significantly assist the whole
decision-making process in crypto trading and investment.
Final Thoughts
As we are moving ahead in a world that is largely dominated
by competition and increasing demand for resources, understanding and making
use of advanced technologies like blockchain and AI can immensely help with our
goals of a better, richer world.
AI is a machine intelligence technology that can develop its
own intelligence based on the data and information that is fed to it. This type
of intelligence can be widely used in not just the finance world but in a range
of industries, including crypto trading, for being able to make profitable
market predictions and decisions based on actionable insights generated through
in-depth study and analysis of the past trends.