Cryptocurrency AI trading is undergoing impressive growth. Some estimates suggest the crypto bot market could grow by a CAGR of 37.2% by 2029. But although it feels like boom time for many, there are still challenges to overcome.
New artificial intelligence trading AI tools must surpass these hurdles before being comfortably adopted. Let’s look at some of the most pressing obstacles.
Unpredictability
The crypto market is famously volatile. It’s not unusual for a cryptocurrency to have a value of $0.0001 one day, $200 a week later, and $10 one week later. To make matters even more complex, these swings often come without warning or logical reasons. For instance, the rise of “meme coins” was unexpected and happened largely because they became an inside joke within the cryptocurrency community.
This is something AI would struggle to pick up on or understand.
AI tools need to make forecasts on the market using data, but often, price movements are literally unpredictable. Plus, erratic price changes can bias the data and result in the AI making inaccurate forecasts about future price movements.
Data Quality
The unpredictability of the crypto market is one reason for biased data, but it’s not the only culprit behind poor data quality.
For one, the cryptocurrency world has limited historical data. When data has a longer timeframe, AI is more likely to identify meaningful trends. Bitcoin — the longest-running cryptocurrency — has been around for less than two decades. And many of the exchanges AI tools want to analyze have histories dating back just a few years.
Plus, cryptocurrency data is complex. It’s spread across many different platforms, and it’s impossible for artificial intelligence trading tools to access all of it. For instance, there’s limited access to data from order books. There’s also no reputable data provider like Bloomberg for the crypto market world — and different sites frequently disagree about current prices of digital coins.
In some cases, sources can even be manipulated, resulting in severely biased data.
Regulations
Regulatory concerns are one of the best-known challenges of implementing AI in crypto trading. As the cryptocurrency market is so new, regulatory authorities like the U.S. Securities and Exchange Commission (SEC) are still scrambling to regulate it. Every year, we see new policies put into place.
Artificial intelligence trading tools need to not only comply with the current regulations but also anticipate upcoming regulations. This may involve collaborating with authorities and helping them understand the technology they use.
Data security is another major area. Cryptocurrency platforms have often been a target for hackers, so tools must ensure they have robust data protection measures in place to protect their users.
Any platforms that fail to comply with authorities or protect their users could face penalties or legal consequences.
Technological Limitations
Another potential challenge is technological limitations. While the developments of AI crypto trading have been impressive, some limitations remain.
Since AI crypto data is so complex and has limitations, sophisticated algorithms are needed to make accurate predictions. Developing suitable systems can be expensive and requires talented programmers, which are in short supply.
Navigating a Rocky Future
As cryptocurrency AI trading grows, it’s increasingly important that creators of algorithms and end users alike are aware of the challenges they face. Four of the most pressing issues are technological limitations, unpredictability of the market, poor data quality, and upcoming regulations.
However, tools that are able to face these challenges head-on put themselves in a prime position for success.
