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How Artificial Intelligence is used in the cryptocurrency market?

By Tim Stone posted Sun April 24, 2022 05:21 AM

  

Cryptocurrencies continue to be an exciting phenomenon today. Having fast achieved popularity and becoming very popular, digital coins continue to be an extremely profitable investment instrument, capable of generating massive profits on cryptocurrency exchanges or when investing in these purchases over the long term.

Over the last years, the cryptocurrency market has caused unexpected yet consistent returns despite the effect of the pandemic and international conflicts. Although cryptocurrencies are pretty new, with Bitcoin first appearing in 2009, the rapid development of Bitcoin catapulted other cryptocurrencies and investment platforms such as Coinbase, Gemini, BlockFi and others. However, of its popularity, cryptocurrency funding comes with many challenges, including technical problems. 

There are over 4,000 cryptocurrencies today, with more developed constantly. Although many individuals have heard of and funded in cryptocurrencies, decentralized currencies and crypto trading are still new and emerging ideas. Since the first cryptocurrency debuted, there has been high volatility and change in valuations. This has further complicated retail and institutional investors and has led to many emotion-based investment conclusions.

Comprehending the crypto market and managing cryptocurrency investments carries a lot of time and skill. With the emergence of more tech-driven instruments, investors and traders are increasingly looking to AI and ML to make sense of funding. Artificial Intelligence and Machine Learning are helpful in crypto markets as crypto funding is adopted by more institutional investors. 

Since cryptocurrencies are supported by blockchain technology, Artificial Intelligence can work alongside blockchain to manage many of the challenges. A few courses in which Artificial Intelligence can be used for cryptocurrency funding include more accurate forecasts, sentiment analysis on the crypto interactions, automated crypto trading and better asset monetization.

More Real Crypto Market Predictions with Artificial Intelligence

One of the biggest issues in cryptocurrency trading is the market's volatility. Bitcoin's weight has proven to be highly volatile in recent years. 

In 2021, the cryptocurrency demand saw a massive jump in returns due to its recognition by leading tech and industry executives and financial companies like Lentrade LLC, sparking a sense of confidence on the future of crypto. Financing in crypto has become more apparent as larger financial institutions such as Goldman Sachs and JP Morgan now offer Bitcoin and other digital money to their wealth management customers. 

With the growth in options for investing, manual research, extraction, and analysis methods are no longer efficient when it comes to recognizing investments and buy/sell alerts. Artificial Intelligence has been an emerging instrument within the financial industry and is even more effective when combined with blockchain. Larger financial institutions have already implemented Artificial Intelligence into their workflows such as Goldman, Citi, and Barclays, while small and medium-sized businesses are also beginning to implement Artificial Intelligence. 

With the favor of cryptocurrency investing, Artificial Intelligence can help overcome the luck of cryptocurrencies. With solid data analytics, investors can expect and forecast significant events in the crypto market and make well-informed investment conclusions. Data analytics can provide valuable insights into a digital currency by collecting, cleaning, processing, and analyzing large sets of data.

Data scientists and developers can make neural networks or forecasting models to explore the historical crypto market data and develop accurate predictions about a certain cryptocurrency's price at a given date and time in the future. 

Also, Artificial Intelligence with blockchain makes an even more potent combination. Blockchain holds a digital record of not only commerce but for anything of value. Since blockchain allows data to be stored and shared securely, Artificial Intelligence can be used to analyze and generate wisdom from the recorded and real-time blockchain data to generate worth. Blockchain transactions can also show behavioral patterns to help make meaning of the drivers in the crypto market. Investors will then be capable to create accurate predictions on cryptocurrencies.

Crypto Market Sentiment Analysis 

Opinion analysis refers to the use of Artificial Intelligence and natural language processing to analyze the view or opinions of people about a specific topic. Overall positive view on a digital currency can predict that the price will rise within cryptocurrency funding, while an overall negative view would predict a price decrease. 

To choose the sentiment of the cryptocurrency market, large quantities of varied data must be gathered, processed, and analyzed. This contains news, forums, social posts, blogs, articles, stock notice boards and even the comments related to them. Using Artificial Intelligence, large amounts of information from the internet, as well as blockchain data can be processed at scale. They can fast analyze the sentiment-whether it is negative, neutral, or optimistic.

By exploring various signals, Artificial Intelligence and ML can recognize manipulations in the market through unique behaviors observed in the sentiment indicators. Once sentiment is connected to the information, investors can apply the insights they found.

Common kinds of sentiment analysis that are useful in interpreting the cryptocurrency market contain: 

  • Polarity: A polarity study analyzes the statements and labels them based on whether they are positive, negative or neutral. Once the general score is considered, analysts and investors will appoint a trend for similar information and labels to be analyzed in the same manner.
  • Tone/emotion: NLP can be operated to analyze the feeling or tone of the text. Insights are drawn by exploring different types of emotions that arise. 
  • Aspect-based sentiment analysis: Aspect-based view analysis categorizes data by the specific business or service and identifies the sentiment attributed to each one. This can include researching customer feedback by associating sentiments with a consequence or service. 

Automated Crypto Trading Strategies

Since Artificial Intelligence can simulate human intellect, investors and analysts often use Artificial Intelligence in high-frequency trading strategies. Traders who can execute trades on the cryptocurrency exchanges fast are more beneficial. High-frequency trading is a form of algorithmic trading used by asset and hedge funds where a computer will execute many orders within fractions of a second. 

High-frequency, automatic cryptocurrency trading calls will be beneficial to maximize assets. The algorithms based on mathematical analysis data, predictive analytics, and forecast methods can analyze the markets and buy or sell cryptocurrencies within moments.

Most big investment banks and hedge funds already carry out high-frequency trading through automated trading venues. Financial algorithms can deliver quick and efficient analyses and help investors make the most knowledgeable crypto trading conclusions. Once a pattern is noticed, investors can also automate the trading strategy and execute high-frequency trading with cryptocurrencies.

Monetizing Crypto Insights

Crypto traders rely heavily on different signals. Nevertheless, with unstructured data conquering the digital landscape, it can be nearly impossible to generate real signals manually. Large quantities of data must be clean, relevant, and accurate before analyzing them to uncover asset insights.

Artificial Intelligence lets data scientists and developers to build strategies that traders can use to accept relevant and clean data on a platform. With AI's natural language processing methods, data can be classified and removed by specific factors including the currency name, document type, currency founder, and more. With AI's abilities, data scientists can offer real trading insights in a manner that is comprehensible to non-tech-savvy traders or investors through an intuitive dashboard or interface. Investors and traders can then improve their profit using the insights achieved. 

Is using Artificial Intelligence for crypto investing right for your firm?

Artificial Intelligence is becoming more critical than ever with the emergency of cryptocurrencies. With creations in Artificial Intelligence, it can also be more available to non-technical users through a no-code conditions. A no-code Artificial Intelligence platform delivers an intuitive user interface where data scientists and critics can build and deploy Artificial Intelligence models without writing any code. No-code AI platforms are transforming the narrative of Artificial Intelligence adoption for financial assistance firms due to lower set up costs and consumption of resources. Nevertheless, not all firms are fit to execute it within their infrastructure. If there isn't a process in place on how to use Artificial Intelligence, it can be even riskier to implement it.

Four ways to ensure victorious Artificial Intelligence implementation include:

  1. Developing a strategy to use Artificial Intelligence within the firm.
  2. Educating the team internally on Artificial Intelligence, how it will be used, and the advantages and potential challenges of executing Artificial Intelligence. 
  3. Developing a clear process for ways Artificial Intelligence can be improved within the company.
  4. Ensuring that the Artificial Intelligence systems are well protected from any data leaks and observation and security issues.

Artificial Intelligence will never be a substitute for the people within investment companies. Integrating employee's talented skills with Artificial Intelligence can bring even more value and profitability, particularly within cryptocurrency funding. Nevertheless, implementing Artificial Intelligence needs a strong internal team framework as the people driving the AI-based methods will be able to provide more value through improved profitability. 

There are several restrictions to the widespread use of the technologies of Artificial Intelligence. In particular, the lack of data, because the cryptocurrency market is fairly new compared to the standard stock market, and the knowledge of Artificial Intelligence is often limited by the amount of data that humanity has.

Changing investor choices, financial regulations, and demographic movements will continue to pressure both buy-side and sell-side companies. Artificial Intelligence will be an invaluable tool for businesses to remain competitive and increase efficiency. 

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