[https://unsplash.com/photos/two-hands-touching-each-other-in-front-of-a-pink-background-gVQLAbGVB6Q]
Ever since its explosion in 2022, AI has crept into the investment arena, with many crypto investors now using it to make smarter, data-driven decisions. According to AI advocates, by leveraging the technology, it’s possible to gain deeper insights on crypto market trends, improving the timing of trades and building more robust portfolios. But are AI-led investments really smarter?
The Thing About AI Investment Tools
Before we answer that, let’s first take a look at what AI investment tools actually are. For those unaware, this is investment tech that utilises ML to gather large datasets from various sources – for instance, the price of Bitcoin, its blockchain activity, and movement volatility.
Using historical data, the models can then identify patterns that often precede market movements, such as price trends or trading volume, predicting potential future outcomes based on the patterns identified.
NLP also allows AI tools to interpret and analyse news articles, social media posts, and market reports, utilising market sentiment analysis to assess the overall mood of the crypto-verse. On top of this, automated trading systems can allow investors to make trades continually, with risk assessment algorithms used to analyse market conditions, correlations between assets, and volatility, ensuring the portfolio is always balanced to mitigate risk.
The Drawbacks of AI Investment Tools
If you’re unfamiliar with AI in the crypto market, this all might seem too good to be true. And indeed, in many ways, it is. There are many risks to using AI as an investment tool, not least the fact that AI is only ever as good as the data it processes. Inaccurate or incomplete data can easily lead to flawed predictions, and if you’re using AI as an automated trading system, this can quickly lead your portfolio into disrepair.
If you want to avoid this, you’ll have to utilise the most advanced AI platforms, but this requires significant investment, which can limit your access if you’re a smaller investor.
Using these tools also requires a clear understanding of AI and the crypto market itself. You can’t just blindly follow recommendations. Especially in the world of crypto, AI should supplement, not replace, human judgement, which means you need to know how to interpret and evaluate AI insights, understanding exactly how the tool has come to its conclusion.
Lastly, it’s worth reiterating that the crypto market is volatile. Unlike the stock market, which generally follows more predictable patterns – influenced by corporate earnings, economic indicators, and regulatory policies – cryptocurrencies operate in a more speculative, sentiment-driven environment. This volatility can result in dramatic price swings over short periods, which can be hard for even the most advanced AI systems to predict.
The Benefits of AI Investment Tools
Having said that, if you are familiar with AI technology, and you’re looking for a tool that can help you to make sense of the crypto market, this could be the perfect avenue. Once again, unlike the stock market, the world of crypto is dense and full of complexities, which can make it particularly difficult to follow even for the most seasoned investors.
AI tools give you a way to process large datasets quickly, delivering insights far quicker than human analysts. Unlike human analysts, too, AI operates without emotions, avoiding human error or impulsive decisions driven by fear or greed.
Not only this, but AI tools monitor markets round the clock, ensuring no opportunity is missed, which is particularly helpful for day traders who depend on fast trades operating 24/7.
We mentioned before that datasets could be limited, and while this is a problem now, it’s also worth mentioning that AI has great scalability. The more data it is given, the more reliable its predictions will be, and since AI can analyse data across multiple markets and cryptocurrencies simultaneously, pretty soon, its insights might be the broadest and most reliable you can get.
Should You Use AI As An Investment Tool?
So back to the main question: are AI investment tools really smarter, and should you be using them? This really depends on what kind of investment tool you use, and the type of investor that you are.
There are many tools on the market that can offer a variety of services, including portfolio trackers – tools that suggest optimal portfolio allocation and monitor performance in real-time – trading bots – tools that automate trading strategies across multiple exchanges – market analytics platforms – tools that provide on-chain and sentiment analysis using AI algorithms – and risk management tools – services that focus on evaluating risk and offering strategies to minimise losses.
If you want to incorporate AI into your investment plan, you’ll need to research each of these tools and work out which one will be the most helpful for your strategies. Likewise, you as an investor should have the finances needed to pay for the best, and have wriggle room in your portfolio to test the waters.
In our opinion, AI tools are not quite ready to be 24/7 trading partners with smaller investors, especially since the datasets are not quite complete enough to provide reliability. They may be in the future, but for now, your own human judgement and research will be far better to make informed, sensible decisions that mitigate risk.