The Role of AI in Crypto

Published on
28/01/2022 11:01 AM

This article was written by Ruud Feltkamp, CEO, Cryptohopper

The use of artificial intelligence in all sectors is growing and the same is true in the cryptocurrency space. Today the use of AI is common practice, especially with big crypto funds.

Crypto funds design a lot of trading algorithms that they use to scan the markets for buying opportunities. Those thousands of algorithms are back tested simultaneously and they switch to the best performing one continuously.

The number of big players in crypto is increasing every day and this includes hedge funds, banks, pension funds and family offices. Those companies often have trading models that are way more extensive compared to retail traders.

Now, it's not only the big players that have the option to use AI anymore.

AI and API

As more players are entering the crypto game, they are using the most sophisticated technologies available. If we look at Google DeepMind, that AI was able to beat the best Go player by playing games against itself. Unlike chess, it’s impossible to know every single potential move. Therefore, it rates which option while playing has the highest chance of succeeding, based on the countless games it played against itself.

Potentially, this could work in trading as well. An AI cannot analyse every single outcome but, by continuously trading, AI in crypto should start to understand which way of trading has the highest potential.

Advantages AI brings to the crypto table

Aside from the obvious benefits, like less time needed to research the market and trading being emotionless, AI has definitely brought a wealth of benefits in crypto.

AI is used in many crypto projects now, including SingularityNET (communication) and Vectorspace AI (data management) to name just a few. There are so many processes in trading that are currently done manually that could be done automatically, which is where AI comes in.

AI is especially useful for simple stuff, like back testing. With so many markets, it is not humanly possible to keep your eyes on all of them, all of the time. This is where AI can make a difference.

At Cryptohopper, we thought let's just make it easier and automate the process. We created what we call AI which stands for Algorithm Intelligence, rather than Artificial Intelligence because actual Artificial Intelligence doesn't really exist in the world – yet!

Our Algorithm Intelligence solution back tests all the algorithms you feed it simultaneously. By doing this, it switches automatically to the best ranking algorithm, which scans for buying opportunities. Your AI can scan to identify market movements, and for buying/selling opportunities.

While it is inevitable that AI use in trading will grow, there are also disadvantages to be aware of.

What are the disadvantages?

A trading strategy won’t work when too many people use the same AI. A young AI system that is not yet sophisticated will make mistakes as it learns.

It also needs good data, and/or good algorithms which it can check. Your AI also can’t, yet, do fundamental analysis, so you need to pick the right projects.

AI helps level the playing field

Even though there are multiple AI trading tools on the market, there is often a higher price for those compared to regular trading features. Eventually, trading with AI will become more mainstream like most other technologies, but it will take many years.

Crypto traders can now use simplified AI to avoid rookie moves like panic selling. You can earn money, but you can ever earn back time, so AI is helpful in avoiding wasting time looking at charts.

Algorithmic trading for a lot of people sounds super complicated. AI and bots help to save you time. Since instead of a long learning process, you can just buy strategies, or even download free ones, and feed it to your robot to let it trade automatically. Four years ago that wasn't even possible!

Even though AIs can be very helpful, it's always recommended to double check how it’s performing.

The flexibility of AI use in crypto is that you can leave your AI trading, while you head home, go out, sleep, and the next day, you'll evaluate how your AI is performed and make the necessary tweaks for it to continue trading on your behalf while you concentrate on other things.

If you talk about the future of AI in how it impacts trading, I think trading has evolved from its origins since everyone can use automated AI trading now. It now will come down to who has the best talent and who is able to invest most in optimizing these trading AIs.

This is possibly already happening, but we just don’t hear a lot about it yet. Luckily, Cryptohopper is a simple solution focused on providing the benefits of AI in crypto, to the public. Cryptohopper offers the ability to start small and, as you get more competent, you can use better tools like the AI.

While trading with AI still is in its early days, I can’t wait to take this to the next step and see what the future will bring us.