Artificial intelligence has been around for a long time. Scientists, researchers, and developers have worked on it since the 1950s. For decades, people thought artificial intelligence would never come to fruition. It seemed like a novel idea from a science-fiction movie. The field of artificial intelligence was founded at Dartmouth College in 1956, and it has come a long way since.

Artificial intelligence has grown exponentially over time. Today, artificial intelligence has become more prominent than ever. Artificial intelligence is prevalent in many industries, like the automobile sector. However, open your smartphone. You’ll find an artificial intelligence waiting to greet you. Siri, Google Assistant, and Alexa are prime examples of artificial intelligence. Although these artificial intelligence systems are prominent, they’re not robust AI systems. We’ll discuss the difference between weak and robust AI later in this post.

Artificial intelligence continues to grow exponentially. There are differing schools of thought about how AI will progress in the future. Some scientists believe the general public has a misconception about artificial intelligence because of media representation. Hence, they prefer using the term augmented intelligence. Likewise, some scientists believe that current iterations of artificial intelligence are weak. They argue that true artificial intelligence will be achieved once singularity occurs.

Regardless of the school of thought; you subscribe to, you can agree that artificial intelligence is ushering in a revolution for humanity. Its widespread adoption is visible in different fields. We’ll assess how artificial intelligence is affecting financial markets.

What is Artificial Intelligence?

Artificial intelligence is the theory and development of computer systems. It aims to make computers capable of performing tasks that require human intelligence, like speech recognition, decision-making, visual perception, etc.  

AI has numerous components, including machine learning. Many people often confuse these terms as being the same or separate. However, the reality is that machine learning is a subset of artificial intelligence.

Generally, AI programming focuses on three primary skills. These include learning, reasoning, and self-correction.

• Learning Processes: The learning processes aspect of AI programming focuses on collecting data and creating rules for converting the data into actionable information. These rules are known as algorithms. They provide computer systems and devices with directions on completing tasks.
• Reasoning Processes: The reasoning process is another crucial aspect of AI programming. It helps computer systems and devices choose the correct algorithm to accomplish the desired outcome.
• Self-correction Processes: The self-correction process is another vital aspect of AI programming. AI systems fine-tune algorithms themselves, ensuring they provide the most accurate results possible.

The Difference Between Weak and Strong AI

Differentiating between strong and weak AI might seem confusing to you. After all, what are strong and weak AIs? The answer is straightforward.

Weak AI is another name for narrow AI. These artificial intelligence systems are designed to perform a specific task. For instance, Siri and Google Assistant are excellent examples of weak AI. While weak AI can accomplish numerous tasks, they still operate within pre-defined functions set by the programmers. As a result, they’re not sentient, nor can they exhibit human intelligence.

On the flip side, strong Ai refers to machines or computer systems that can exhibit human intelligence. They’re self-evolving because strong AI can continue learning by itself without human intervention. The concept behind strong AI is to create an artificial intelligence system that mimics and even surpasses human intelligence. No strong AI currently exists. It’s highly unlikely we’ll see strong artificial intelligence manifest anytime soon. Otherwise, it would signal the start of the singularity.

Artificial Intelligence in Cryptocurrency

Artificial intelligence is also playing an integral role in cryptocurrency. The cryptocurrency market has skyrocketed since its inception in 2009. Today, there are over 18,000 cryptocurrencies on the market. Cryptocurrency adoption continues growing rapidly, gaining pace every year. The past few years have been particularly monumental for cryptocurrencies. Crypto has emerged from its bubble and acquired mainstream attention. Cryptocurrencies like Bitcoin and Ethereum have become household names. An increasing number of traders and investors continue flocking in droves to purchase cryptocurrency because it holds immense potential to yield sizable returns.

Statistics show the blockchain market was worth approximately $1.2 billion in 2018. By 2021, the market has expanded to $6.92 billion. Research shows the market will continue growing exponentially, reaching $162.84 by 2027.

Blockchain technology isn’t the only thing fueling cryptocurrency because other contributing variables also play a part. Smart contracts, decentralized finance, and NFTs are all playing their part, helping cryptocurrency adoption skyrocket.  

As the cryptocurrency market grows, new challenges arise. Artificial intelligence is playing a pivotal role in helping address these issues. Here’s how artificial intelligence is working in the crypto trading sphere:

Price Prediction and Forecasting

It’s no secret that various factors impact the value of cryptocurrencies like Bitcoin and Ethereum. Factors influencing cryptocurrencies’ value include market forces, investor sentiment, geopolitical stability, market volatility, supply chains, etc.

Unfortunately, these factors also mean that cryptocurrency is extremely volatile. Forecasting and price prediction are crucial for investors and traders in the crypto sphere. Fortunately, AI can be a saving grace for them. Various AI models can be used to predict price, making crypto trading and investing more sustainable in the future.

Automated Trading

Artificial intelligence can also help automated crypto trading. However, this isn’t something new because artificial intelligence has already been used for trading in other financial markets like stocks and forex.

Crypto trading has grown more popular than ever because of several reasons. The days of crypto being traded on the deep and dark web are long gone. Instead, notable institutions have integrated cryptocurrency into their operations. A prime example is PayPal. PayPal enables people to buy and sell four cryptocurrencies – including Bitcoin, Litecoin, and Ethereum – via their platform. Crypto trading has also skyrocketed because of non-fungible tokens (NFTs) receiving mainstream attention.

Automated trading is revolutionizing cryptocurrency trading. Traders can create AI trading bots to perform trading functions for them. Some trading bots are especially complicated. They can set stop-loss orders, react to market developments, and make trading decisions on the fly like normal human beings.

Automated trading can also help automatically trade cryptocurrency as part of investment portfolios, like stocks today.  

Risk-Prediction Volatility

It’s no secret that cryptocurrency is inherently volatile. A prime example of cryptocurrency’s volatility is Bitcoin’s price fluctuations in 2021. Bitcoin started the year at approximately $20,000. However, it quickly appreciated to $40,000 in January 2021. Bitcoin continued its bullish run, rising to $65,000 by April 2021. Eventually, it nosedived. April, May, and June were all rough months for Bitcoin as its value tanked week after week. Eventually, it was worth less than $30,000 by June end. However, it started to appreciate again in the second half of the year. Eventually, it crossed $60,000 again in November 2021. However, it didn’t stay there for long because it declined again.

As is evident from this example, cryptocurrencies are extremely volatile. Investors and traders cannot invest in them without risk because they never know where their investment might end.

Cryptocurrency is so volatile for several reasons. The space is unregulated, and cryptocurrencies are decentralized, meaning no governing body or authority can exercise control over it. In addition, cryptocurrencies are also still in their infancy. As a result, price discovery is ongoing. These factors make cryptocurrency extremely volatile. But these also render it an excellent investment for those with high-risk tolerance because the profit potential is enormous.

Artificial intelligence can prove extremely beneficial in helping traders and investors determine crypto volatility. Machine learning can observe past and present market data, like crypto prices. It can then predict price fluctuations in intervals as short as an hour.

Risk Prediction Compliance and Illicit Activity

Many experts believe the most notable way artificial intelligence will affect the cryptocurrency landscape is through compliance and regulation. Artificial intelligence has the power to ensure the ethical use of cryptocurrencies while limiting illicit activities using crypto.

People often have a misconception that cryptocurrencies promote illicit activities. However, that’s a misnomer. The reality is that all currencies represent economic activity, facilitating the transaction of goods and services. For instance, street dealers often accept the US Dollar for drugs. That doesn’t mean the US Dollar is boosting illicit activity. Instead, it shows that criminals will use any currency convenient for these transactions.

Cryptocurrency’s decentralized and unregulated state provides more leeway to criminals. In addition, it also affords them relatively more anonymity, making it a more attractive option for them.

Fortunately, introducing artificial intelligence can help curb these activities. AI can use transfer and federated learning to sort through publicly available data. Doing so enables AI to assess transactional risks. It can also flag suspicious activity from different transactors. Machine learning allows artificial intelligence to learn patterns and identify anomalies. AI could detect fraud, corruption, trafficking, money laundering, and other nefarious activities.

The involvement of artificial intelligence could have several benefits. Firstly, it could reduce an institution’s compliance and regulatory requirements. In addition, it also removes bad actors from the environment, making crypto trading and investing safer and more secure.

More importantly, AI can scour public information and de-anonymize criminals using cryptocurrency to stay under the radar.

Artificial Intelligence in Stock Markets

Artificial intelligence also has a crucial role to play in stock trading. Numerous instances of AI use already exist in the stock market. For instance, traders use automated trading bots to help them in their stock trading endeavors.

Traditionally, traders tracked stock prices and analyzed them against historical market data. This process was painstakingly long and inefficient, consuming too much time. Hence, the need for artificial intelligence grew more prominent than ever. Today, numerous automated trading programs exist that can capture market insights and data for you. These complex mathematical programs can crunch information for traders to use in their endeavors. AI systems can also notice patterns that most humans can’t. Some hedge funds today possess AI with machine learning abilities. These systems help them analyze more than 300 million data points within the first hour of NYSE’s daily trading.

However, AI technology isn’t only assisting traders with crunching data. Retail traders have AI systems that comb through various sources and knowledge bases to gather information. These systems use the collected data to predict future stock market movements.

Artificial Intelligence in Forex

Artificial intelligence is also playing a significant role in forex trading. Forex trading is inherently complex and risky. However, most traders use AI trading bots to reduce their failure risk. Statistics show approximately 90 percent of successful forex traders use AI trading programs to profit. Forex traders benefit from AI programs because they can analyze massive data piles, track real-time performance, streamline trading processes, etc. These insights are also invaluable for forex traders because they help them make more calculated trading decisions.

Another benefit of AI in forex trading revolves around predictive analytics. Predictive analytics refers to utilizing existing market data and algorithms to predict future market movements. It’s challenging for humans to analyze these massive data piles themselves, if not downright impossible. That’s where artificial intelligence thrives. AI software can forecast future market movements for traders, helping them rely on data-backed trading strategies.

Another overlooked advantage of AI in forex trading is eliminating emotional or panic trading. It’s natural for traders to panic sell or panic-buy when market conditions change. Likewise, a bad streak of trading decisions can also cause traders to abandon their trading plans and start making poor trading decisions. AI prevents this from happening because it provides meaningful information to traders.

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