Crypto Markets

Artificial Intelligence and Cryptocurrency: Separating Hype from Reality


Pick an industry – any industry – and you can virtually guarantee that AI will have been hailed as its next big thing. The cryptocurrency sector is no different, with many of 2017’s ICOs shoehorning the concept into their whitepapers somewhere in a bid to appear “cutting edge” and in touch with the zeitgeist. But beyond all the hype, what impact will artificial intelligence have on the crypto industry, and could its rise ultimately render human traders obsolete?

Also read: Late Quadrigacx CEO Used Personal Funds to Fulfill Withdrawals

The Companies Cashing in on the AI Craze

AI is to tech what “blockchain” is to the cryptocurrency industry: a concept whose genuine applications are significantly outnumbered by the projects interested solely in latching onto the buzzword and surfing it for all it’s worth. Given that startups described as being involved with AI attract 15-50% more funding than other tech firms, it’s understandable why companies are so keen to cash in on the hype. Unfortunately, this has served to drown out much of the real progress being made in AI-based technologies.

In the traditional financial markets, AI is well established and has already made its mark. For artificial intelligence to be effective, it requires vast troves of data for the purposes of machine learning, and the stock market is ideal for this purpose, with terabytes of empirical data to draw upon. The evidence that AI can out-trade humans in this domain is compelling. A recent study by Eurekahedge of 23 hedge funds using artificial intelligence showed that the computers returned significantly better results than those managed by people. But what about in the cryptocurrency markets?

Artificial Intelligence and Cryptocurrency: Separating Hype from Reality

AI Is Already Here – It Just Isn’t Evenly Distributed

Within the smaller cryptocurrency sector, there’s an assumption that there are too many exogenous factors for AI-based tools to have an edge. That assessment will soon seem archaic, for with the development of software that can simulate trillions of trading days, algorithmic trading powered by AI will inevitably prevail.

Danil Myakin is the co-founder of Squilla Capital, an analytical service for crypto project and market evaluations that incorporates AI and big data. He told news.Bitcoin.com: “Human bias is almost impossible to eliminate. People trade on their emotions, often unwittingly. Data-based decision-making eliminates the noise that can cloud people’s judgement, preventing them from acting rationally, and focuses solely on the signal.” Myakin added:

Provided you have a large enough sample set, computers that have been trained using machine learning will consistently derive more accurate insights than humans. In recent years, this theory has been proven in every major financial market, and it’s now being applied to the cryptoconomy with equally convincing results.

How AI Is Being Applied Within the Cryptosphere

There are a number of areas in which artificial technology is showing its worth when it comes to automated trading. One of these is high frequency trading (HFT) which relies on analysis of technical indicators across multiple exchanges in order to respond to market-moving trades faster than the rest of the market. For example, if a trader was to place a large BTC buy order on Kraken, HFT could enable an order to be executed on another exchange almost instantly to capitalize on the price spike.

Artificial Intelligence and Cryptocurrency: Separating Hype from Reality

AI can also facilitate automated trading via API connected to leading exchanges. Traders can select indicators they wish the software to base its decision-making on, such as RSI and EMA, and the desired timeframe. The AI will then implement trades within these parameters. Traders can backtest their settings, refine and optimize them. As time goes on, the AI’s performance should improve as the dataset at its disposal increases. Away from the crypto markets, AI is also being used for sentiment analysis, to sift through the chatter occurring on social media and determine how the community feels about particular projects, from which actionable insights can be derived.

Artificial intelligence isn’t a panacea that can be liberally applied to every facet of the cryptocurrency industry, nor is it going to render the smartest human traders redundant overnight. Nevertheless, its invisible hand is already pulling strings within the sector, facilitating everything from faster order execution to detecting bots and scammers. Our AI overlords are already here.

What are your thoughts on AI-powered trading – do you think it will eventually dominate the cryptocurrency markets? Let us know in the comments section below.


Images courtesy of Shutterstock.


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Kai Sedgwick

Kai’s been playing with words for a living since 2009 and bought his first bitcoin at $19. It’s long gone. He’s previously written white papers for blockchain startups and is especially interested in P2P exchanges and DNMs.



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