As AI trading tools gain popularity in the crypto sector, many traders are misunderstanding their functionality and inherent risks. The latest episode of Byte-Sized Insight examines the increase in AI trading systems, the hype surrounding them, and vital factors for investors to consider before entrusting automation with their assets.

Understanding AI Trading Bots

AI trading bots are increasingly attracting attention within cryptocurrency markets, leading to both enthusiasm and concern among traders aiming to automate trading strategies. However, experts assert that a significant number of users misinterpret the capabilities and limitations of these tools compared to general-purpose AI like ChatGPT.

Brett Singer from Glassnode and Nodari Kolmakhidze of Cindicator, who specializes in AI-driven strategies, provided insights into how these bots function. Singer identified that the key advantage of AI in trading derives from data analysis rather than intuitive decision-making:

“People create these models that can explore an entire database within a day or two and be able to develop and create these trading strategies.”
Despite advancements with AI, the reality is that many bots struggle under typical market conditions. Singer pointed out:
“In the most part, they did not beat the market,” underscoring the reliance on superficial backtests.

Distinctions Between AIs

He also delineated the divide between generic AI models and those designed specifically for trading:

“There’s a big difference between specialized training models and general purposes.”
Expectations for chatbots to yield profitable trading strategies are unrealistic. Trading remains a complex task even for seasoned firms. Kolmakhidze reiterated that many users wrongly perceive AI bots as infallible profit-generating machines:
“The biggest misconception is that AI bot is like a money printer… It’s not like that.”
Market dynamics can change unpredictably, and efficient models risk collapse in volatile times.

Ultimately, both experts concluded that AI is not meant to replace traders but to assist them, with Singer remarking that current AI functions resemble

“an associate or an intern that can work 24 hours a day” but still necessitates human discernment.

For a full interview, listen to the entirety of Byte-Sized Insight on Cointelegraph’s Podcasts, or find it on Apple Podcasts or Spotify.