Predictive Power: How AI and ML are Shaping Crypto Trading

With thousands of assets across multiple blockchains, there is no lack of data in the cryptocurrency landscape. Some of this data is easy to analyze, such as buy/sell data on a trading platform. However, in most cases, we have to combine data from multiple sources, including on-chain data, to paint a complete picture.

The integration of artificial intelligence (AI) and machine learning (ML) techniques into the landscape has completely changed the insights we can draw from this data, making way for smarter, data-driven trading.

A Look at the AI and ML Market

It’s no secret that there’s a bright future ahead for AI. However, let’s take a look at the possibilities in our industry for a moment. A study by Allied Market Research showed that in 2020, the global market size for AI and advanced ML in the banking and finance industry was $7.66 billion. By 2030, this is expected to grow to $61.24 billion.

Given these impressive growth projections for AI and ML in traditional finance, it’s essential to consider the cryptocurrency sector. As we’ve seen, the potential for AI in traditional banking is enormous, and it only seems natural for this technology to become prevalent in crypto, one of the most innovation-focused industries. The rapid evolution of the cryptocurrency industry, with its decentralization and transparency, offers an ideal platform for AI and ML to shine, especially in terms of trading. Cryptocurrency trading, by its nature, deals with extensive data that AI and ML are perfectly equipped to handle.

The Role of AI and ML in Crypto Trading

AI and ML algorithms have significantly impacted crypto trading by providing the ability to analyze large volumes of trades and associated data across various markets and on-chain data. The large amount of on-chain data, coupled with rich social data can already provide exceptional insights for traders. They can help optimize decisions in quantitative trading and manage financial risks. Let’s take a look at some key ways these technologies are providing more insights for investors.

1. Predictive Analytics: ML algorithms can be trained on historical cryptocurrency price data to predict future prices or trends. This kind of predictive analytics can potentially assist traders in making informed investment decisions. At IntoTheBlock we use predictive analytics in various ways, such as in price predictions.
2. Sentiment Analysis: The cryptocurrency market is highly affected by the sentiment of the traders, which news, social media, and other public sources of information can influence. AI and ML can process and analyze this unstructured data at scale to ascertain market sentiment and provide valuable insights. We use our social sentiment analysis to form an image of positive or negative sentiment around specific assets.
3. Risk Management: AI can help identify potential risks and manage them effectively. It can help to analyze on-chain data for risk scenarios. This information can be used to optimize a portfolio in a way that maximizes returns while minimizing risk. We use advanced risk modeling and simulation techniques for our DeFi Risk Radar, which is a risk analytics solution for DeFi.
4. Quant Strategies: AI can help to create and manage complex trading strategies that respond to market changes in real-time. IntoTheBlock provides these kinds of strategies coupled with risk management to institutional investors through our DeFi Smart Yields solution..

There are plenty of other use cases for AI and ML in trading, such as those related to portfolio management, regulatory compliance, anomaly detection and fraud detection.

At IntotheBlock we utilize these capabilities across our business. A simple example are our indicators, which often use ML & AI to provide insights. These indicators are available through our website and many partners of ours have chosen to integrate these indicators in the form of widgets in order to provide traders with comprehensive analytics and insights to guide their trading decisions.

We also use these technologies to formulate DeFi strategies for our DeFi Smart Yields customers and to perform risk analysis for DeFi protocols.

An indicator from our DeFi Risk Radar showing the Health Factor Distribution of positions in Benqi

In Short:

The cryptocurrency industry is filled with data. Making use of this data in the right way can have a significant impact on trading outcomes, and AI and ML can help you do that. So whether it is through generating key insights for trading, protecting from economic risk or navigating DeFi effectively, we believe that the future for AI in our industry is bright. If you’re interested in learning more about this, feel free to contact us and we’d be happy to share our insights.

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Predictive Power: How AI and ML are Shaping Crypto Trading was originally published in IntoTheBlock on Medium, where people are continuing the conversation by highlighting and responding to this story.