Impact of AI on Cryptocurrency


AI is being utilized a great deal in conventional financial niches. Many hedge funds count upon AI to secure far superior yields in their transactions in the stock markets. However, AI’s advancement is much more significant in the crypto industry, and it truly is inevitable for this to function as the quickest way of transactions. It functions in almost a very similar way to the stock markets using the graphs, previous data records, and performance of a particular coin on the cryptocurrency exchange market.


AI bot tools are algorithm-based software developed to detect market parameters and trends in the crypto industry. The AI bot detects the trend and best possibility of yielding the maximum results and automatically executes the transaction. Thus the buyer is free of a load of trying to keep a watch about the fast transforming trends in the crypto marketplace tendencies to create the correct decision on buying or selling cryptos. These tools constantly work on expanding the portfolio of its users, and it responds or acts to any change in the industry’s market trends. They’re made to make the most of the likelihood of creating the most suitable purchase determination as a direct reaction to this stated marketplace place tendencies. But ultimately, when it comes to investment and finances, no program can ensure an absolute victory. Profit out of an investment depends on the user’s capability to select the best tool and a sound strategy.

1) Fraud Detection

AI even acts as a fraudulent detector in the crypto trading market. AI bots can easily detect any suspicious activities in buying and selling crypto tokens from a crypto exchange platform. AI uses the machine learning method which is very similar to the stock market where these models are well equipped and trained and these systems adapt and implement those to identify fraud or financial crimes. The machine learning techniques that are majorly used are Clustering, Classification, and Decision Trees.

2) Crypto Exchange System

AI helps classify and identify the actual centralized wallet addresses belonging to the particular crypto exchange platform. These AI systems can detect any negative means used to deposit or withdraw from those crypto wallets. These models can see a minute error in virtual wallet transactions out of a centralized crypto exchange system. The Machine Learning(ML)techniques that are majorly used are Clustering, Classification, and Decision Trees.

3) Investor Behavior Analysis

Here, AI tools help individual investors determine which crypto coins to trade, buy, or sell. The AI system tries to identify the big investor’s pattern of buying and selling crypto assets and how they change in the market using ML techniques. And thus using those techniques, these AI system suggests the transactions and predictions to its users using the behavioral pattern of the big investors or players in the market. The MLtools used here are Recurrent neural networks and convolutional neural networks.

4) Fund Flow Analysis

AI gives out an analysis of how the fund system flows out in the entire crypto exchange platform. These systems help us understand the fund patterns and try to predict any potential impact on the prices of the crypto coins or tokens. The ML used here are Long-Short-Term-Memory networks and recurrent neural networks.

Advantages of an automated trading function

  1. These applications’ algorithms can identify and understand the market patterns and immediately automate buying or selling cryptos. 
  2. Any manual or human trading’s drawbacks such as slow response times and the inability to thoroughly search the market are no longer a problem in the automated trading system.
  3. These algorithms actively scan and understand the market patterns to identify the best trading models and opportunities.

Disadvantages of an automated trading function

  1. The trading strategies on which these algorithms rely are not adequately tested and not always successful. 
  2. Poor network connectivity and hindered power supply are some fundamental problems that can directly impact the portfolio of the investor. 
  3. The processing power is entirely dependent on the hardware configuration and durability of the machine, which withstands the AI system.


However, there are lots of limits to the widespread usage of AI technology in the crypto industry. Specifically, the shortage of information, since the cryptocurrency marketplace is relatively new compared with the standard stock exchange, and the understanding of AI is frequently restricted by the lack of information.  However, in due time, we are likely to see AI and cryptocurrency go hand in hand in terms of trades, patterns, and investments on all grounds.

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