by Lauralee Dhabhar, on Jun 27, 2023 10:28:31 AM
Back in 2021, when the cryptocurrency industry was still breaking ground, we speculated as to how artificial intelligence (AI) would impact the sector. Given the pace of AI advancement, we expected to see it find prominence within automated trading, risk assessment, and compliance detection. As we now stand in the present, it is fascinating to examine how these predictions have fared and witness the actual applications of AI in the cryptocurrency space.
Price Predictions and Forecasting:
One of the most promising applications for AI in cryptocurrency was its ability to make accurate price predictions and forecast market trends. While there have been significant strides made in these prediction capabilities, it is important to acknowledge that cryptocurrency markets are highly volatile and unpredictable. Organizations such as Unicsoft, Coin Price Forecast, and intotheblock have developed AI models to analyze historical data, identify patterns, and make predictions. However, the nature of cryptocurrencies still poses accuracy challenges, especially during periods of extreme market turbulence.
Automated Trading:
In 2021, the concept of AI-driven automated trading created excitement. These systems were expected to leverage AI algorithms to execute trades based on predefined strategies and market signals. Today, this is a reality, with over 75% of trades around the world being managed by automated platforms. Many trading services now employ AI-driven crypto bots, which utilize historical data, social media, current market conditions, and more to optimize performance.
While this technology can improve your profitability, it is important to recognize that not all algorithms are created equal. The price for many bots is several hundred dollars per year, and that price tag is not tied to their performance. Before considering automated trading, do your research.
Risk Prediction - Volatility:
Volatility has been a defining characteristic of the cryptocurrency market, making risk prediction a crucial area for AI application. By analyzing historical data and market indicators, AI can provide insights into potential price fluctuations and market trends. This aids in managing risk and optimizing investment strategies. Although AI has proven to significantly reduce the risk associated with market volatility, they are not immune to sudden market shifts.
Risk Prediction - Compliance and Illicit Activity:
Possibly the largest concern surrounding cryptocurrency is compliance and illicit activities, such as money laundering and fraud. It is just within the past couple of years that we have witnessed governments around the world applying regulations similar to those of traditional financial institutions to the crypto industry. In its infancy, cryptocurrency trading was the ultimate, untraceable, and anonymous channel through which illicit actors could channel funds. Growing regulatory guidelines and AI-powered risk management tools are making strides in closing the door on this activity. The traditional practices of KYC, CDD, and transaction monitoring are now able to occur across populations of millions of clients with accuracy and efficiency due to advanced technology.
There is no doubt we have witnessed notable progress in AI and cryptocurrency since our predictions in 2021. AI technologies like GOST have made significant contributions to risk mitigation. While challenges remain, such as accurately predicting volatile markets and combating ever-evolving illicit activities, the role of AI in the cryptocurrency industry continues to evolve. As technology advances and data availability increases, we can expect AI to further refine its capabilities and drive innovation within the cryptocurrency space.