How Artificial Intelligence is Used in The Cryptocurrency Market?
Did you know that AI is taking baby steps into the crypto world? Since last year, cryptos have been performing consistently well at a time when every other asset has been suffering because of the pandemic. Crypto popularity may have spiraled only recently, but the first Bitcoin made its debut a decade and more ago.
Why is AI Important in Making Investment Decisions?
With the growth of cryptos following the Bitcoin, many investment platforms came about like BlockFi, Gemini, Coinbase, Kraken, etc, and you will find 4000 and more cryptos today. In spite of the variety of digital assets you can choose from, investments are still unnerving for beginners. The way cryptos are traded and the concept of decentralization are new to them. Understanding the market and taking investment decisions demands time and skills. This is where technology-driven tools can be a big help. Machine learning and artificial intelligence have therefore found a place in crypto investing.
Just like AI finds applications in healthcare, security, fintech, it is also being extensively used in crypto investing. As cryptos are founded on the blockchain, artificial intelligence can work with it to resolve many technical challenges.
Benefits of Using AI in Crypto Investments:
- One of the biggest advantages of using AI in crypto market is for making more accurate market predictions. The severest challenge in crypto trading lies in understanding the market and how it works. Volatility is rampant and prices fluctuate dramatically. This volatility depends on how the value of a crypto is being interpreted by the market. For instance, recently, the crypto market witnessed a huge change and bigger returns because of interest amongst institutional investors and big fintech firms. Organizations like JP Morgan and Goldman Sachs have started offering crypto investments to clients. As investment possibilities grow, researching, extracting, or analyzing data manually is no longer efficient. This is where AI steps in; companies like Barclays, Citi, and Goldman have started using AI for investment advice.
- Sentiment analysis is when you use AI to analyze opinions and public sentiment on a certain issue. For instance, an overall positive feedback about a digital asset is indication that its prices will probably go up. For predicting market sentiment, you need to gather, process, and evaluate huge volumes of data from news articles, blogs, social media posts, etc. AI streamlines this task and quickly tells you whether the sentiment is neutral, negative, or positive. Using machine learning and AI, it is possible to detect market manipulations.
- Automated trading: You must have heard of trading bots being used by newcomers. AI can replicate human intelligence and this explains why it is used by analysts and investors in trading strategies. For examples, traders that can execute trades faster tend to make profits quicker. High-frequency trading is based on algorithms where computers can execute huge volumes of orders in a matter of seconds. So, high-frequency automated trade signals are useful for getting the best out of investments.
- Getting crypto insights is important for traders and for this; they must rely on trade signals. But there is a lot of unstructured data out there which makes it difficult to produce accurate signals manually. This data has to be relevant, accurate, and clean for one to discover useful investment-related insights. Here, AI can help because developers and data scientists can create new methods for traders to get clean information. Data is easy to classify and extract according to specific parameters using AI techniques.