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How Artificial Intelligence is used in the cryptocurrency market?

This article was published as a part of the Data Science Blogathon.

Introduction

Cryptocurrencies continue to be an extremely interesting phenomenon today. Having quickly achieved popularity and becoming very popular, digital coins continue to be an incredibly profitable investment tool, capable of generating huge profits on cryptocurrency exchanges or when investing in these assets over the long term.

Presently there is a precise increment of clients’ premium in digital money trades, where it isn’t hard to “get” a decent pattern and rapidly acquire on this value development. Experienced theorists make their capitals thusly. Exchanging stages with Bitcoin, altcoins, well known these days trade satoshi to usd and other crypto-resources can get benefit by opening positions physically subsequent to investigating the market, contemplating value diagrams, perusing information of specialized pointers, and so on, be that as it may, the 21st century has allowed the chance to perform gainful crypto-exchanging programmed mode through uncommon crypto-bots.

In a quickly developing fragment as the crypto market, the capacity to mechanize the exchanging interaction is popular. Brokers with coding abilities and programming information can make their own crypto robots or cleverly improve existing Expert Advisors for productive exchanging of advanced coins. The robot will autonomously exchange cryptographic resources, carrying beneficial pay to its proprietor.

Notwithstanding, there is a huge danger, which for reasons unknown is determinedly disregarded by fledglings and unpracticed crypto-merchants. Handfuls and many calculations that computerize exchanging trade instruments are currently consistently accessible on the Internet, and nothing is thought about their genuine quality. It is not difficult to commit an error in their settings or to run an at-the-first wasteful bot. Obviously, this will prompt a fast loss of the store. That is the reason crypto robots ought to be taken care of cautiously, with various tests on demo accounts.

It is always necessary to be vigilant and choose a trading advisor for crypto-trading very carefully. Otherwise, it is easy to pick up a viral miner, lose money from your trading account, or just unknowingly transfer earned coins to a fraudster’s crypto-purse!

Machine learning and artificial intelligence are actively used to analyze traditional financial markets (DataTrading, EmmaAI, Aidyia, Qplum, Estimize platforms). However, some companies were forced to close due to the nuances that we will disclose further.

Accordingly, similar tools are applicable in the field of crypto-trading as well. What is the peculiarity of using ME(Mathematical expectations) and AI(Artificial intelligence) in the cryptocurrency market and how can they help its development?

The high volatility of cryptocurrencies not only increases the risks of crypto trading but also makes it more profitable than any other form of investment. Prices are subject to frequent fluctuations throughout the day, which, if calculated correctly, allows traders to earn a stable income. To calculate the patterns of the dynamically changing crypto market, it is necessary to process vast amounts of information, which artificial intelligence and machine learning systems can help with.

The main advantages of AI and ME:

  • Ability to analyze large amounts of data.

  • Learning ability.

  • High work speed.

  • Accuracy.

Even now, billions of dollars worth of conventional assets, stocks, and bonds are being managed with the help of artificial intelligence technologies. The use of ME and AI systems in the crypto market is not so widespread, but these technologies are being actively implemented in the cryptocurrency space, developing in three directions.

 

Forecasting the cryptocurrency market using AI

 

cryptocurrency market using AI

Augur’s decentralized platform for creating peer-to-peer prediction markets is based on the experience of network participants. Nevertheless, it allows it to make fairly accurate predictions on cryptocurrencies. Augur announced the creation of its 1,000th market on August 16 of this year. Augur was developed by the Forecast Foundation, a nonprofit organization, to form accessible sources of public forecasting.

In contrast, the NeuroBot platform is based not on user experience, but on the work of neural networks. With their help, it makes predictions about the dynamics of the cryptocurrency market. The system itself monitors exchange rate fluctuations, compares them, and predicts changes for the next day. The authors of NeuroBot claim that their platform analyzes the changes with an accuracy of up to 90%. The creators plan to improve the system by including technical and fundamental analysis in it.

Such platforms can make life much easier for novice crypto traders who have not yet had time to learn the full scope of information. Of course, it is impossible to rely on prognostic platforms for everything, but they can take the lion’s share of technical analysis of the market and conduct it with high accuracy.

 

Market sentiment analysis using AI and ME

 

Market sentiment analysis using AI and ME

Determining the sentiment of the cryptocurrency market requires processing a lot of different data. This includes articles, blogs, forums, and even comments under them. Senno, a platform based on blockchain and artificial intelligence technologies does the analysis automatically and is able to give the result in a short time. The system also applies elements of machine learning in its work.

Senno has also signed a partnership agreement with CryptoScanner, an app that uses artificial intelligence to predict market sentiment and shares the results with traders to help them develop their strategies.

 

Finding parties to make deals

One of the problems of the cryptocurrency market is the lack of liquidity. Strong exchange rate fluctuations make digital currencies not very attractive as business payments. The difference between supply and demand is often compensated by high fees from exchanges and banks. To solve the problem, platforms like TradeConnect, which uses machine-learning technology, are being used. It uses a side-matching protocol and helps the customer find the right broker and bank, transact directly, and pay minimal fees.

Individual companies are specifically engaged in the development of AI platforms related to the provision of services in the cryptocurrency market. For example, the Money Token team created AI assistant Amanda, which will lend to members of the cryptocurrency community. The virtual assistant will be able to provide loans against cryptocurrency collateral and deal with full support – from the moment of application till full repayment of the loan.

 

Security when using cryptobots

 

Security when using cryptobots

It is necessary to be careful when entrusting someone with the API keys of your exchanges. Only trusted services with a good reputation deserve it. After all, the API key is a kind of permission to use your account, including trading through it and the withdrawal of funds. Any bot requires the API to work, that in itself is not a sign of fraud.

Examine each platform carefully before you start working with it. Find out what security methods are used there. Always activate two-factor authentication to limit account access.

 

Advantages of cryptobots:

  • Round-the-clock trading. A bot does not need to sleep or do other things, unlike a human.

  • Absence of human factor. People make mistakes, both in trading operations and in auxiliary ones, such as entering details.

  • Instantaneous automatic execution of operations according to the set parameters.

  • Lack of emotion and strict adherence to the plan.

  • Ability to test trading ideas with Paper Trading or based on historical data.

  • Convenient diversification and risk-sharing.

Disadvantages of cryptobots:

  • There are unsuccessful or outdated strategies in cryptobots. An inexperienced user who chooses such a strategy will incur losses.

  • Many fraudulent projects. Don’t be fooled by promises of hyper profits, this should immediately alert you.

  • The bot should be monitored, adjusted, and maintained, contrary to the common misconception of “set and forget.

  • There are bots with low-quality software. Usually, these are new and raw projects, so it is better to choose proven and already 100% debugged platforms.

  • A bot, even a properly configured one, does not guarantee profits. There are many factors that affect prices and earnings.

 

Advantages of automated cryptocurrency trading

 

Advantages of automated cryptocurrency trading using AI

During the period of its prosperity, the now-bankrupt cryptocurrency exchange MT-Gox used very actively a special cryptorobot, called Willy, which manipulated the value of BTC coins. This trading robot was the first bitcoin bot that actually caused bitcoin prices to rise and then fall. This situation took place in 2012-2014, when the cryptocurrency market, and all decentralized money, was little known and not very popular.

Naturally, the current development of the crypto industry has completely blocked the possibility of using bots for such manipulations of the price of decentralized coins. Robots are mostly used to automate trading on exchanges. Such implementation of algorithms is due to a good set of advantages of speculative activities carried out through cryptobots. The most significant advantages are the following:

  • The trader does not need to incessantly monitor the virtual currencies market and constantly calculate the moments to open positions;

  • The use of cryptorobots to trade digital assets eliminates the fear factor and the element of emotional state in trading decisions. Most novice crypto-traders lose deposits solely due to psychological and emotional instability and neglecting the rules of their own trading strategy;

  • The cryptocurrency bot is able to clearly recognize chart patterns, candlestick patterns, directions of quotations, and trend reversal points, which are often invisible to the trader;

  • A well-tuned trading robot analyzes charts more effectively, makes more efficient trades, and searches for the best entry points.

The mentioned qualities are just an example of the usefulness of automated cryptocurrency trading. There are many more advantages of such programs, which can help any trader.

 

Conclusions

There are several limitations to the widespread use of the technologies of AI. In particular, the lack of information, because the cryptocurrency market is relatively new compared to the traditional stock market, and the knowledge of AI is often limited by the amount of information that humanity has.

Another difficulty is that highly accurate and complex machine learning algorithms require powerful and sophisticated computing hardware that only giant companies can afford. But all this can be solved by learning and strengthening AI and ML fundamentals from any decent AI course

It should be remembered that the quality of any cryptobot is determined by the correlation between its efficiency and real value. Any bot for trading cryptocurrencies on an exchange must have a stable performance.

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