13 August 2024
By Roger Kennedy
roger@TheCork.ie
The world of trading has significantly transformed with the advent of AI crypto trading. Managing portfolios has become simpler, as AI-based solutions offer previously inaccessible advantages. This has enabled more effective asset diversification, rapid fundamental and technical analysis, risk management, and a confident approach to achieving financial goals. It has also allowed trading without emotions and taking advantage of high-frequency trading. However, the biggest change AI has brought to traders’ work is in Crypto portfolio management.
What Is Portfolio Management in the Context of Cryptocurrencies?
A trader’s portfolio consists of the assets they hold, buy, or sell to increase their profits. While traditional traders include currency pairs, stocks, bonds, precious metals, and other assets in their portfolios, crypto traders choose various cryptocurrencies, from well-established and long-standing ones to newly emerging tokens with promising prospects.
The challenge with cryptocurrencies is that they are relatively new, so some traditional tools for assessing an asset’s viability may not work. Furthermore, a new approach is required to understand reliability and stability. Managing a crypto portfolio requires significant effort, including:
- Constantly monitoring market conditions, news, etc.;
- Conducting deep analyses of new cryptocurrencies to assess their potential stability and growth;
- Continuously adjusting the investment portfolio according to the ever-changing conditions of the cryptocurrency market;
- Actively following news and factors that can impact the prices of even stable assets like Bitcoin or Ethereum;
- Selecting new types of cryptocurrencies for the portfolio to diversify assets and protect the trader from bankruptcy if their main investments do not perform well.
Traditional market traders operate similarly, but the significant difference lies in the unique nature of cryptocurrencies. In traditional trading and investing, professionals often rely on their experience and intuition. However, in cryptocurrency trading, AI-driven cryptocurrency analysis is much more effective.
How Does Artificial Intelligence Help Manage Crypto Portfolios?
Crypto traders face unique challenges, dealing with large volumes of information to analyze. Processing such volumes manually is almost impossible. AI can perform this analysis instead of the trader. It can analyze data, identify patterns, spot price trends, and make forecasts. This analysis occurs at high speed, and the results are quite accurate. Therefore, AI trading and cryptocurrencies are an inseparable duo.
Advantages of AI in Managing Crypto Portfolios
You may already guess why managing an investment portfolio primarily composed of cryptocurrencies becomes much simpler with the use of AI, but that’s not all.
Unparalleled Accuracy of Analysis
The market is unstable; new tokens and cryptocurrencies appear almost daily, and existing ones change in price, drop, or rise in value. Such dynamics make high-precision manual analysis impossible, but automated programs, AI, and machine learning make it feasible. This reduces errors, resulting in fewer losses for the trader.
Speed of Data Processing
Imagine the task of processing gigabytes, and sometimes terabytes, of information to determine the next step, which cryptocurrencies to focus on, and when to buy and sell. AI tools for cryptocurrency trading handle such tasks effortlessly. Speed is crucial during analysis and when trading on crypto exchanges, where transaction speed is paramount. The speed of data processing and transaction execution offered by AI and algorithmic trading has made high-frequency trading possible, allowing profits even with slight price fluctuations.
AI Can Monitor the Market Continuously
Unlike humans, AI can work non-stop 24/7, missing no movement or significant event. AI tools for managing cryptocurrency investment portfolios help monitor market conditions, price changes, sentiment, etc. They also enable timely reactions to these changes, either multiplying the existing capital or protecting it from downturns. Thus, during periods of market turbulence (which is almost constant in the cryptocurrency market), a crypto trader cannot do without modern AI tools. This is what makes a professional competitive and able to withstand the most challenging waves in this turbulent environment.
AI is Completely Devoid of Emotions
This is why it operates according to rules rather than intuition, fear, greed, or stress. Fear and greed are the factors that often lead to irrational market behavior and decision-making, which can result in losses. Fear and greed are so significant and influential among traders that there are technical indicators to determine their levels in the market and understand who dominates: bulls or bears. When AI steps in, it can act dispassionately and use overbought or oversold conditions to maximize profits. AI operates rationally and consistently, based on predefined settings and rules, which helps avoid most mistakes.
AI Solutions are Scalable
This means you can manage multiple portfolios simultaneously, testing different approaches and strategies. This is also suitable for large investors and even hedge funds.
What Could Be the Pitfalls?
The main issue is that implementing AI-based solutions is technically complex and financially costly. The more functions you want to delegate to AI, the higher the initial costs (which will eventually pay off, but this nuance should be considered). Additionally, the tools you use will need updates and maintenance to remain relevant and effective over time.
Is There a Future for AI-Assisted Crypto Asset Management?
Considering current trends, the intensive use of AI tools in cryptocurrency trading will continue to grow. Despite the mentioned drawbacks, it holds much more potentially beneficial prospects. Experts suggest that:
- AI could be integrated into Blockchain, making processes even more transparent.
- Predictive analytics will improve, with AI tools for cryptocurrency trading responding to more variables, making forecasts more accurate.
- Users will be able to configure AI-managed systems to align with all the nuances of their trading strategies. This combination of human experience and AI capabilities will be decisive in gaining even more opportunities.
So, if you are still wondering whether to start using AI in cryptocurrency trading, it’s only a matter of time before it becomes a necessity. However, investors know that those who take advantage of these innovations first will benefit the most. Now is the time to be one of them!
Don’t miss the opportunity to jump on board and enjoy both the advantages that cryptocurrency trading offers and the possibilities of simplified investment portfolio management. AI is essentially your 24/7 assistant who never goes on vacation, doesn’t take days off, and never gets tired. In some cases (such as automated trading), these tools can take over most of the routine tasks, leaving you in control of operations and strategy adjustments.