From Google Home to Alexa, artificial intelligence plays a big part in cryptocurrency trading

From Google Home to Alexa, the role of artificial intelligence (AI) seems to have grown over the years. It is now believed that AI will play a bigger role when it comes to crypto trading. “As more financial institutions offer crypto assets as a wealth management offering, the role of AI-powered trading is becoming more popular. There are over 4,000 cryptocurrencies and even the oldest coins have large price fluctuations. Likewise, Bitcoin’s 30-day volatility index is double what it was in 2016 (according to data published on buybitcoinworldwide),” Saurav told Raaj, founder and director of Wize, a non-fungible token (NFT) infrastructure for businesses FE Digital Currency.

According to industry observers, AI is used in smart trading systems to predict stock markets and currency prices. According to a report by IEEE Access, Generalized Autoregressive Conditional Heteroskedasticity (GARCH) is a statistical time series model used to understand volatility. “AI is in the realm of market sentiment analysis. Unlike traditional stocks, discussions between trading communities and social media reports can influence trading decisions. AI with natural language processing (NLP) can analyze market and community sentiment and provide valuable insights to traders,” Raaj added.

Courtesy: IEEE Access, ResearchGate.

It is believed that trading decisions are usually based on behavioral biases that cause them to respond to an emotion that can lead to errors in processing information. “AI-led crypto trading is unlikely to eliminate emotional factors, it will likely amplify this with machine learning. Deliberate correction in AI programs to avoid trading on large corrections and surges can help. Still, it’s also likely to slow down the usual stop-loss or take-profit drills,” said Liquing Yu, analyst for the Economic Intelligence Unit (EIU) for India, Indonesia and Singapore.

Additionally, industry experts noted that AI, if implemented and trained properly, can help eliminate human bias. According to Vikram Pandya, Director, Fintech, SP Jain, making scientific decisions based on data, not impulse, definitely helps.

According to the June 2019 Business Insider report, there are three areas where AI is being used in banking, namely conversational banking, fraud prevention, risk assessment and lending. AI-based systems can help process trading data that can help traders make better investment decisions. “AI with machine learning (ML) can provide protection against such attacks and reduce damage in real time. In extreme cases, it can be used to trip circuit breakers and even stop trading,” Raaj added.

Also read: From centralization to decentralization; how blockchain-focused fintech can benefit the financial industry

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