The capabilities of artificial intelligence (AI) have taken the world by storm, and the trading industry is no exception, especially in the cryptocurrency world.
According to a PWC report, by 2030, AI has the potential to contribute $15.7 billion to the global economy. Meanwhile, the revenue of the crypto industry could reach 1.1 trillion dollars for that same yearshowed research conducted by GlobalData.
The merging of these two industries could undoubtedly become groundbreaking, and many investors are already using a number of artificial intelligence tools at their disposal to help them make their cryptocurrency trades.
Here are the five lessons AI traders have shared with us.
Crypto Trading is a "confined learning"
Daniel Guan, the CIA in Kvants IAa decentralized asset management platform that offers access to AI-enabled trading strategies, told Technopedia that one of the key lessons cryptocurrency traders need to keep in mind is that cryptocurrency trading is โlimited learning.โ
According to Guan, what AI is essentially doing when used for cryptocurrency trading is trying to understand how the token moves and how a particular user can benefit from that.
What this essentially means is that for a cryptocurrency trader to be successful in their job, they must first understand how the cryptocurrency they are trading is moving, what are some key factors that are affecting its price, and how the cryptocurrency might react to any upcoming news.
Karlis O (last name removed for privacy), CEO and Co-Founder of Championadded that great language models (LLM) in the size of ChatGPT they could become great tools to help investors form a basic understanding of something they may not be too familiar with.
The most obvious way is to use [large language models] as a lever to do fundamental research. For example, if you're looking to trade a particular vertical and you're not very familiar with that vertical, big language models are your way of short-cutting to getting 80/20 or so on things that are new to you.
AI helps spot trends
One of the biggest advantages of using AI when trading cryptocurrencies is the technology's ability to analyze large amounts of data in significantly short periods of time. This ability helps AI cryptocurrency traders to make decisions in cryptocurrency trading, Vikas Kaushin, CEO of technology aheadhe told Technopedia.
AI helps spot patterns and trends in the market that human traders may miss due to cognitive biases. This provides more informed judgments that are backed by data, eventually leading to better trading results.
Karlis added that most of the AI โโtools used when trading cryptocurrency are specifically tuned to focus on market signals, whether it's analyzing data from Twitter, looking at the semantics of what's happening in the market, or analyzing sentiment heat maps.
Cryptocurrency trading is 24/7
Unlike traditional markets, cryptocurrencies are traded 24/7, which could be one of the trickier aspects. No trader can stay awake 24/7, which means that many could potentially miss out on great buying or selling opportunities during times when they are not available.
Guan from Kvants AI pointed out that this is why they have developed an AI help tool that helps investors monitor the cryptocurrency market 24/7.
In fact, we have a license in Singapore that allows us to manage the assets of our small clients. In this sense, the assets of the clients are aggregated in finance, so, like a custody service, said aggregated account is managed by artificial intelligence strategies that can react very quickly to the market.
Traders have to react fast to market trends
It is a universally recognized truth that cryptocurrency markets are highly volatile, which means that cryptocurrency traders need to be quick when it comes to making important decisions.
Conveying his past experience in traditional finance, Guan noted that if cryptocurrency traders rely on some traditional financial strategies, their judgment may not be reactive enough for the volatile cryptocurrency market.
AI and machine learning are really very well suited for this world because they can provide very fast reactions and an adaptive learning environment to work in. In that sense, whenever something new happens with the price of a cryptocurrency, traders can always learn something and try to react to it.
Karlis added that large language models can be useful here as well, as they serve as an advantage in information comprehension speed.
"Of course, you have to take into account the level of error expected, but effectively, you can think of it as faster due diligence."
Risk tolerance is vital
AI's ability to rapidly analyze large data sets comes with another major drawback: the ability to detect and potentially mitigate risks.
TechAhead's Kaushin explained:
Furthermore, Guan said that risk management is a key issue in the financial industry and should also be a key priority for crypto investors, especially given the high volatility the industry is experiencing.
When a risk event occurs [in crypto trading], investors must decide whether to come to this event or not. And if they choose to react, they must do so as quickly as possible. That is why AI has an advantage, since it can make decisions based on the information it has processed over the years.
The bottom line
In general, crypto trading Using AI could become a fun experience, however, before one starts incorporating AI into their cryptocurrency trading strategies, they need to build a strong foundation in both cryptocurrency trading fundamentals and AI-associated technologies, Kaushin emphasized.
Karlis added:
AI tools make humans more productive no matter what their search avenue, whether they trade, start businesses, or engage in any other form of activity.
Artificial intelligence and crypto technologies are constantly evolving, so staying on top of your game and adjusting your crypto trading strategy is very important for every trader.
