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Crypto, Bots, and Trading: The Rise of AI in the Cryptocurrency Market

Updated: May 23, 2023, 11:10 AM

Bots and trading

In past years we’ve witnessed an explosion in the cryptocurrency market. New coins and exchanges are showing up all over the place. Trending cryptocurrencies became a profession of choice for many traders. It’s mostly due to AI, which made it far easier through crypto bots.

What Are Crypto Bots?

The idea of an automated trading system has been cooking for a while. It has roots way back in 1949 when a man called Richard Donchian presented the concept. The idea was that certain rules could be used in funds trading.

The concept of “rule-based trading” will eventually be adopted in the 1980s when some of the biggest names in trading, like John Henry, saw its potential and started exploiting it. From then on, trading bots will remain popular within the industry in various forms. It’s worth noting that its cost made it available to just a few traders who could afford it. For example, the Bloomberg terminal cost in excess of $10,000.

Eventually, crypto trading bots appear. They are programs that automate the trade of crypto assets for the one using them. Usually, that process includes an investor or a trader choosing a specific cryptocurrency to buy or sell at a specific time, considering market statistics, which is important in trading and can’t be overstated.

These are key components that are shared by the majority of crypto trading bots:

●     Market Data Analysis

In the module, the bot collects and interprets market data from diverse sources. The bot will also decide whether to buy or sell a certain cryptocurrency asset. Furthermore, most bots will allow the users to choose the data types that will enter the signal generator sector. Which, in return, will provide the user with clearer results.

●     Market Risk Prediction

Market data is used by this module, too, with the end goal of predicting the market’s potential risks. When processing that information, it has the ability to choose the right amount of investments or trade. That is where a crypto trading bot brings the biggest value.

●     Buying/Selling the Assets

The usage of APIs allows this module to trade cryptocurrency assets strategically. There’s a time when buying tokens in bulk isn’t the best idea. Also, there are situations when time is critical for a purchase. When having the Execution module, these types of situations aren’t a problem.

How Can a Crypto Bot Help You Earn Money

3 moving parts that are used by the best trading bots are:

  1. Signal Generation: In simple terms, signal generation can help you predict the market’s moves and allow you to make calculated moves.
  2. Risk allocation: This part determines the number of assets to buy when getting the buy or sell signal.
  3. Execution: The last part is responsible for enabling you with the best price by navigating the market.

Depending on buy and sell strategies, both in traditional and cryptocurrency markets, there are specific bots to go along with them:

●     Trend trading bots

As the name suggests, this bot considers the state of the specific assets and executes buy or sell orders after analysis.

●     Armitage bots

Arbitrage is a trade that utilizes the difference in price in different markets or forms. This bot takes advantage of that fact. Even capable of making a profit by simultaneously buying and selling assets in inefficient cryptocurrency markets.

●     Coin lending bots

Lending coins to small-time traders that’ll be returned with a percentage is another way to profit from cryptocurrencies. This bot automates this process while maximizing the gain derived from it.

● Market-making bots

There is a benefit to trading assets frequently. The job of this bot is to exploit that fact. It manipulates the market to manipulate the prices and profit from it.

How Crypto Bots are Driving the Market

Regarding monthly visits, 3Commas, Cryptohooper, and Shrimpy represent the top trading bots.

●     Bots can manipulate exchanges

Pointing many bots in the same direction can add value to the exchange. It’s known as “wash trading.” While it doesn’t look like a big deal, the fact that bots represent a bigger part of trading activity on an exchange is something that can’t happen in traditional markets.

They are heavily regulated to enable such occurrences. But cryptocurrency markets don’t fall under that same regulations. Sadly, as much as 95% of cryptocurrency volume is a victim of that trend. Besides helping its users, trading bots help the market, too, bringing it liquidity.

●     A healthier, more exclusive market

Ways of using bots should be apparent now, but it is worth stating the influence of cryptocurrencies as a whole. The tools we’re talking about were at the disposal only of major financial institutions, but now literally anyone can use them.

In that aspect, cryptocurrencies are leveling the field of trade, shrinking the disparity that was present throughout history. The ones promoting these kinds of bots will state that they are making the exchanges healthier, thus making the market as a whole more efficient.

●     Greater liquidity can lead to more institutional interest

The insufficiency of buyers and sellers is bad for the market. But, the usage of bots meets that problem. It provides traders with faith that their assets can be sold anytime. That is a crucial thing for the market’s health. In that way, liquidity brings stability.

Market makers, the ones that make buy and sell offers across the market and profit from that, are also huge stabilizing factors. Besides making a profit for themselves, by doing so, they will increase the market’s liquidity.

In Conclusion

With AI’s help, the cryptocurrency market is bound to go forward. As the market grows, so will the use of bots. To jump onto that wagon, the following is needed:

  1. Check Reddit to see what bots are available. Then pick the one that’s most compatible with your strategy.
  2. Contact the company via newsletter so the software updates don’t skip your radar.
  3. Also, follow their social media accounts for any other updates.