June 21, 2023
Cryptocurrency trading is an ever-growing activity amongst digital asset enthusiasts. Its popularity does not mean it is easy though. To be a profitable trader, one must correctly analyse and predict crypto prices. To do this, traders use various methods - some working better than others. However how with the rise of artificial intelligence (AI) many traders are adding AI price predictions to their arsenal. Some even think AI can predict the next economic crash. To help, we’ve researched some expert opinions to see just how true these statements are.
AI also collects historical data such as trading volumes, charts, and related information. These data can cover various timeframes. Furthermore, AI also monitors real-time potential risks, such as economic conditions and cryptocurrency prices.
For example:
In the next step, AI processes the information using machine learning algorithms. It analyzes patterns and trends in the market. It uses statistical models to make price predictions. Hence, AI can identify potential risks and send alerts before crises arise.
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The financial industry is dependent on customers’ personal information and market movement.s AI algorithms allow financial firms to analyze data. According to British multinational professional services company Deloitte, “For financial service providers, AI capabilities are all very relevant." It is due to the data-intensive and technology-dependent nature of the industry. Besides, AI could help financial firms to test risks in investments and loans.
Financial firms can access relevant data to make decisions. Yet, most of the time, there is a limitation on the access available. Dr. Lewis Z. Liu, CEO and co-founder of Eigen Technologies was interviewed by Forbes. He believes that AI equipped financial institutions to make decision-making processes successful. Hence, the use of AI enables companies to discover valuable insights - such as prediction risk and security.
Financial services also apply machine learning to detect fraud. AI can also prevent financial crime, such as money laundering. The importance of these benefits speaks for itself.
AI gives signals about the potential risk of fraud so firms can avoid possible losses. AI can also provide credit scoring and assess applicants' default risk.
Not only does AI contribute to the decision-making process, but it is also useful in companies’ operations. “These technologies are being used to enhance customer service, improve risk management and streamline internal operations.” said Fluent in Finance founder Andrew Lokenauth, an investing and banking professional.
In the customer service area, AI could provide accessible 24/7 service. This could increase customer satisfaction by meeting the customers’ needs.
The Entrepreneur explains that the implementation of AI in the industry encourages innovation. One of the most recent innovations that gains attention is conversational AI - like ChatGPT. Firms are starting to use chatbots to enhance customer experience. Chatbots are effective and efficient because they offer personalized responses. Voice recognition is another breakthrough innovation. Voice recognition enables customers to conduct transactions by using voice commands.
Making investments through trading with the help of AI brings significant benefits. AI gives the best portfolio recommendations based on investors’ goals. According to Towards Data Science, multiple financial institutions trust AI to manage their entire portfolios. This shows that the AI’s price predictions are relatively accurate and dependable.
Utilizing AI in crypto trading makes it easier for traders to predict prices. It enables traders to make beneficial trading decisions. Yet, traders cannot rely entirely on AI predictions. Trading requires human intervention, since some potential risks may occur when using AI. Here are some pros and cons of using AI in crypto trading:
With the help of AI algorithms, traders can save time in gathering information and analyzing market trends. AI algorithms can also identify patterns that may be not noticeable to humans. Furthermore, AI provides traders with better risk management. This can help traders to make well-informed and strategic trading decisions.
The cryptocurrency market is volatile and uncertain. Humans are often affected by emotions, which leads to irrational trading decisions. In contrast, AI makes decisions and recommendations based entirely on data. This eliminates the emotional factors that usually hinder a wise trading decision. Hence, by utilizing AI to predict prices, traders can weigh their strategy options and manage their potential losses.
AI constantly learns from historical and real-time market data. AI processes the information and develops it into predicting more precise price movements. The algorithms are also adaptable to changing market conditions. As a result, AI could recommend more profitable trading.
As AI helps to simplify the analysis process, traders might become dependent on AI. This might drive traders to neglect their responsibility to track their trades and potential risks. As a result, human intervention in AI’s decisions becomes limited. This could lead to the potential of unforeseen risks and significant losses.
AI is prone to programming errors, just like any other technology. It is vulnerable to potential risks such as poor data quality and bias. Moreover, market manipulation and the complexity of market dynamics can cause errors. AI might make a mistake in interpreting the market signals. Thus, developers must test and confirm the AI models to avoid such risks.
AI algorithms are complex, making them challenging to understand by humans. This is because AI algorithms are made of mathematical models using programming languages. Additionally, there is no transparency behind the decision process. Hence, the reliability of AI’s price predictions is questionable.
The experts are optimistic about AI. It has great potential in helping financial service providers and crypto traders analyse risk, gather research and help make well-informed decisions. That being said, AI is not perfect and cannot do all the work for humans. At least not yet. For now, a good combination of human and artificial intelligence is a good balance.
Using AI to assist with research and “busy work” while leaving the big decisions to human experience seems to be the best strategy at the moment. With AI quickly evolving though, it will be interesting to see what its capabilities are soon.
Editor-in-Chief of the YouHodler blog. Connect with him about writing techniques, cryptocurrency, and music.
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Do not invest with YouHodler unless you’re prepared to lose all your money or tokens invested. Crypto Currency is considered as a speculative and high‑risk investment and you are unlikely to be protected if something goes wrong. Take 2min to learn more about risks.
YouHodler is regulated in the EU (Italy) and Switzerland, and does not have a regulated UK entity. YouHodler is NOT regulated by the FCA, and protections offered under UK law do not apply.
YouHodler promotions are not targeted at UK investors, and bonuses or loyalty programs like the rewards programme or sign-up offers will not be available to residents of the UK. You can learn more about the services offered to UK customers here.
Do not invest with YouHodler unless you’re prepared to lose all your money or tokens invested. Crypto Currency is considered as a speculative and high‑risk investment and you are unlikely to be protected if something goes wrong. Take 2min to learn more about risks.