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.
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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.
4. Improved fund performance
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.
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.