Last year, it was the metaverse that took the world by storm. This year, artificial intelligence (AI) seems to be the new hot topic, and probably for good reason.
While the metaverse remains an ambiguous, abstract concept, AI’s potential effects are more concrete and already being noticed, thanks to popular tools like OpenAI’s ChatGPT, which was acquired by Microsoft to the tune of $10 billion.
As AI continues to prove its capabilities, this rapidly evolving technology is now being combined with another burgeoning sector: cryptocurrencies. Programmers have designed AI-based tools to help navigate the wild world of crypto. If you’re interested in what the convergence of AI and crypto looks like today, here is the breakdown you need.
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AI meets crypto
The most common use of AI in crypto trading is through the use of something called a bot. Think of a bot as your own personal financial advisor. Except this financial advisor doesn’t sleep — it always has its eyes on the market, and its only motivation is to serve your best interests. These bots revolutionize trading because the human error and emotion that inevitably arises in every decision we make becomes effectively nonexistent.
Bots can help your trading in a handful of ways. First, as mentioned, they are emotionless. They make decisions relying solely upon data. But they also do much more.
Bots automate tedious work usually associated with buying or selling a position, account for historical and live market data, make trades for users with precision when specific criteria is met so that opportunities aren’t missed, and can replicate proven strategies.
Furthermore, there are even AI tools that are able to analyze vast amounts of data from multiple sources outside crypto markets, including social media and news articles to gauge investor sentiment. Sentiment analysis tools use natural language processing (NLP) to analyze social media and news articles to quickly identify positive or negative sentiment and alert traders to potential market movements. If certain conditions are met, the bot can even execute trades automatically.
Perhaps the most innovative and exciting aspect of AI trading tools is the potential of machine learning. These machine learning algorithms can be programmed into a bot to analyze market data and identify patterns, trends, and anomalies. By analyzing historical market data, bots can predict future market movements, such as when the market is likely to experience a bull or bear run.
The current landscape
Today, there are a multitude of AI portfolio managers for crypto. A simple search on the internet will likely bring up thousands of results, but while they all offer more or less the same services, there are significant variations in products that users need to be aware of.
First, is the price. The cost of these tools varies widely. Some are free, and some can run you nearly $100 a month.
Then there’s the product itself. There are bots that have extremely technical capabilities that allow savvy users to fully customize trading strategies, while others have a more hands-off approach. With these simpler products, investors can select a preconfigured strategy based on individual objectives.
A necessary disclaimer
While the allure of letting a bot manage your entire crypto portfolio can be difficult to ignore, it should be noted that although this technology has come a long way and has vast potential, it is still in its infancy.
Before selecting an AI portfolio bot, make sure to do your own research and ensure that the strategies it uses meet your criteria.
RJ Fulton has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
