Thanks to the rapid evolution of artificial intelligence (AI), many aspects of life are becoming simpler. By speeding up processes, AI helps with everything from work to trading and investing.
While technology can be extremely helpful when it comes to investing in cryptocurrencies, experts say there are pitfalls to avoid.
“AI excels in a variety of areas when it comes to cryptocurrency investing. It can analyze market sentiment faster and more accurately than a human investor,” said Brian Prince, co-founder and CMO of XCoins, founder and CEO of TopAITools.com. You can spot trends. For example, he said, it can be used in robo-advisory, allowing you to take a hands-off approach to crypto investing.
“But there are some obstacles to pay attention to,” he added. Here are some of them.
1. Selling too early or day trading without experience
According to Prince, cryptocurrency investing, like other investments, needs to be approached with a long-term view. However, because AI investing platforms make it easier to engage in high-frequency trading, it can be easy to try to “play the market,” he added.
“I prefer Warren Buffett’s philosophical approach to investing, whether it’s stocks or cryptocurrencies. Never buy for one minute an investment that you wouldn’t want to hold for 10 years,” he said, noting that it’s important to keep an eye on long-term gains.
“The fact that you can try to time the market and buy and sell frequently through AI may not be the best strategy, depending on your risk tolerance and financial situation,” Prince added.
Prince also noted that while some short-term, higher-risk investments can help you grow your money faster, cryptocurrencies are highly speculative.
Therefore, never invest more than you can afford to lose, especially if you are looking for short-term gains by timing the market with the help of AI, he added.
2. Do not trust “blindly” and investigate
Vijay Marolia, founder and chief investment officer of Regal Point Capital Solutions, recommended not trusting their advice. Instead, he suggested using it for research, data entry and/or analysis.
“Don’t forget to double-check anything that seems crazy or unreasonable,” Marolia added. “AI uses LLMs (large language models) that have the tendency to invent information; this is known as hallucinations within the AI world.”
John Patrick Mullin, CEO and co-founder of MANTRA Chain, echoed this sentiment, saying that while integrating AI into your investment strategy could be helpful, “AI is not a crystal ball.”
“Investors should first test the theory,” Mullin said. “Most of the time, what makes a clear distinction between profits and losses in crypto is proper research. “Smart investors will leverage AI insights as a starting point for further research and due diligence before making any investment.”
In turn, John Matze, co-founder of the Hedgehog social network, said that it is very important to approach trading and investing the old-fashioned way, that is, do as much research as possible before making any financial decisions.
“AI platforms like ChatGPT and Gemini should be seen as a tool to help you with your work, not necessarily something to rely on,” he added.
3. Forgetting to control your investments and neglecting the help of human advisors
Another pitfall to avoid, according to Prince: AI can also make it tempting to neglect your investments.
In turn, he said that it is imperative to periodically monitor your investments to measure their performance and make the necessary adjustments.
Along the same lines, neglecting the help and assistance of human advisors is also something to take into account.
“It’s important to recognize when you may have a complex financial situation that requires professional guidance from a human being,” he said, adding that cryptocurrency investing, in particular, is fraught with ever-evolving tax ramifications that may require the advice of experts.
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