The Impact of Artificial Intelligence in Cryptocurrency Trading

Ever since it appeared approximately a decade ago, cryptocurrency has been transforming the way we perceive money, payments, security, and privacy.

Although it has had its fair share of ups and downs, digital money is set out to challenge and decentralize not only financial systems but also the concept the ownership and access to real-time information.

In 2018, the size of the blockchain market was estimated at $1.2 billion, and that number was expected to grow.

Despite the fact that the crypto market is growing and the number of new investors putting their money into it is increasing on a daily basis, this field is facing different challenges and technical difficulties. But when artificial intelligence is thrown into the equation, crypto trading is more likely to remove these obstacles and fulfill its potential.

Predicting and Forecasting

The volatility of cryptocurrency valuations remains one of the biggest problems of cryptocurrency trading. And artificial intelligence can overcome this roadblock by allowing investors to predict and forecast future developments in the crypto market and make well-informed decisions.

Powerful data analytics and the capability to collect, process, analyze, and interpret huge sets of data and crunch the numbers thus providing valuable insights into the upcoming trends is one of the most common examples of artificial intelligence.

This practically means that developers can create neural networks-based models that analyze historical market data and generate accurate predictions about, say, a particular asset’s price tomorrow or a month from now.

Without AI, this kind of analysis would take too much time or it would be even impossible to produce meaningful results.

What’s great is that there are AI-powered tools, such as, that allow regular users to access predictive analytics and take advantage of the information they obtain in order to make better investments.

Sentiment Analysis

This sophisticated approach also relies on the AI’s capability to leverage big data analytics and process a huge amount of data collected from blog posts, social media, stock message boards, transcripts, and numerous other communication channels and identify the market sentiments about a certain topic.

By analyzing all these cues AI and machine learning could even spot market manipulations through some unusual behaviors observed in social sentiment indicators.

It can’t be denied that this discipline is tricky, but natural language processing, another sub-set of AI can be of great use in this case. Here are a couple of common sentiment analysis types that play an important role when it comes to interpreting crypto-asset intelligence:

  • Polarity analysis: This approach analyzes statements and labels them based on whether they’re perceived as positive, negative, and neutral. Then the overall score is taken into consideration and a general trend is established.
  • Emotion/tone analysis: In this case, a more granular approach is used, meaning that instead of pinpointing a single, prevailing sentiment of the text, it draws conclusions by analyzing different kinds of emotions that appear.
  • Aspect sentiment analysis: This type of analysis takes particular subjects within sentences and interprets the sentiments aligned with them.

Fundamental Analysis

Although there are many differences between regular stocks and cryptocurrency, they share several similarities, one of which is the importance of the fundamental analysis.

This procedure leverages a combination of qualitative and quantitative factors for investigating market information and estimating the value of a particular asset. In other words, the fundamental analysis helps investors decide what crypto projects are profitable in the long term.

This basically means that different macroeconomic factors of the market, as well as the characteristics of the asset itself, should be taken into consideration.
If we bear in mind that there are hundreds of different coin types, it’s clear that investors need a good understanding of the subject matter, as well as of blockchain technology, and business in order to make accurate calculations.

Again, artificial intelligence performs all this faster while eliminating the possibility of human error.

Monetizing Insights

As crypto traders heavily rely on different signals, it’s only logical that it needs hard data in order to be successful. Otherwise, they would have to depend on the guesswork.
On the other hand, AI allows developers and data scientists to build platforms that traders can use in order to obtain relevant data-based information.

This is a win-win situation, as data scientists can monetize their knowledge by offering trading insights in a manner understandable to not particularly tech-savvy traders, who would in return be able to increase their profit.

These platforms are intuitive and don’t require advanced technical expertise in order to be used.

Moreover, this can have a huge impact on popularizing cryptocurrency trading and the use of crypto money in general. Namely, by this method of incentivizing data professionals for sharing marketing predictions, as well as encouraging crowd-sourcing of valuable information, ordinary people will be able to start investing.

High-Frequency Trading

High-frequency trading is a strategy that relies on complex algorithms to analyze the market and buy and sell in seconds based on the results of these analyses.

Milliseconds play a critical role in this tactic as it’s essential to buy or sell at the right moment in order to capitalize on price spikes and gain an advantage over other traders.

So, the basic ingredient of HFT is speed and having the right information. AI has transformed crypto trading as it allows for such speed and volumes of data.

But, that’s not all as there’s another benefit that artificial intelligence technology offers – cryptocurrency bots. These smart programs pick up the slack and do a great part of regular users’ job. They monitor prices, analyze them, notify users about currency patterns, and even perform trading operations based on different preprogrammed parameters.

In a highly competitive and volatile cryptocurrency market, the help from an automated bot capable of acting quickly based on the latest data is indispensable.

This explains the estimates that computers are currently generating somewhere between 50-60% of trading in equity markets.

It’s clear that the growth of cryptocurrency trading will be profoundly affected by artificial intelligence. This powerful technology will both enable investors and users to have all the information they need to make good decisions and it will at the same time simplify things for those who aren’t technology experts and allow them to start participating in crypto trading.


Predrag Milicevic