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Artificial Intelligence (AI) has transformed our lives in a seemingly infinite number of ways. It has changed the way we consume data, interact with electronics, and aids us in making decisions on a day-to-day basis. Technologies that were once thought to only exist within the realm of science fiction have come to fruition over just the last few decades.
Simple examples of AI are things like chatbots, spam filters, and self-parking cars. These examples are ones that most people are familiar with, but there is a wide spectrum of uses that many individuals may not be aware of. One of these uses is in the algorithmic trading of stocks and other financial assets. The AI programs used to perform trades can process information at speeds far beyond the capacity of the human mind. These programs are able to spot developing trends, entry signals, and sentiment changes much more efficiently than even the most seasoned traders.
An area where AI is being implemented with great success is in the Trading of bitcoin and other cryptocurrencies. This is very similar to the use of AI in trading more traditional financial instruments but differs in several key ways. To understand these differences we must first briefly discuss the basics of bitcoin. After this, we will look at the role AI is playing in the trading of Bitcoin and other Cryptocurrencies.
An Overview Of Bitcoin
Bitcoin is a decentralized digital currency based off of blockchain technology. For the purposes of this article, it is not necessary to go into the details of Blockchain beyond saying that it is a digital ledger where transactions are recorded and verified by multiple machines at once. Because it requires numerous, unconnected, computers to verify and record a transaction the blockchain ledger is not under the control of any central governing body the way national fiat currencies are. Transactions on the ledger cannot be erased, overwritten, or manipulated in any way.
Bitcoin, and other cryptocurrencies, is a form of digital cash built on blockchain technology. It has been positioned as an alternative to Fiat whose value is backed by nothing more than the government that issues it. There have been many objections to Bitcoin as a currency alternative and one of the most common ones is its instability. The coin is notoriously unstable. In 2017 the price per Bitcoin reached nearly $20,000. At the current time of writing, March 2017, it is worth roughly $5,400 with many ups and downs along the way.
This instability has attracted many speculators looking to flip the coin for large profits. With the speculators so too have the AI bots arrived on the scene.
AI And The Bitcoin Market
AI Likely Generates The Majority Of Trading: This can be hard to quantify since the Bitcoin markets and trading platforms are not regulated in the ways traditional markets are. This being said, it is known that between 50-70 percent of the trading in equity markets is performed by AI bots. Furthermore, 50% of treasury bonds are known to be traded by AI-based algorithms along with 60% of the futures market. With such strong bot implementations in these markets, it can be safely assumed that they perform a great deal of the trading in Bitcoin/Crypto markets as well.
AI Will Contribute To Massive Swings: As good as AI tech is it still lacks certain levels of understanding. Experienced traders can look at bid/ask lots as well as market timing and be able to see if the market is being purposefully manipulated. A human trader may not see these actions as being indicative of the market as a whole, but rather an example of manipulation for profit. AI algorithms can not understand this and in a market, with as much instability as Bitcoin, it usually adds momentum to the large swings initiated by purposeful manipulation.
Emotionless Trading: Any experienced trader will say that controlling one’s emotions is one of the hardest parts of trading. People become emotionally invested in trades, have a hard time admitting they were wrong, and usually sell too late. AI trading programs remove this emotion from trading. If the bot is told to sell any coin that has incurred a 5% loss it will do so. Having a winning trading strategy is often not enough, especially for those making the trades themselves. It is important to be able to control one’s emotions. AI bots have no problem doing this.
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Author bio
Victoria Munson is a business reporter at Gumessays.com. She ensures that she is always up to date with the latest trends in technology, business, and current events. Victoria looks for trends in these areas to help her analyze and interpret these events in a meaningful way. She is a digital market and content creator.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.