When ChatGPT first appeared in November 2022, it immediately set off a speculative frenzy in the crypto world. People knew intuitively that the rules of the game had been changed, and the rush was on to find the most effective ways to harness the seemingly unimaginable power of ChatGPT to trade crypto.
In just the past six months, we've seen an influx of AI-powered products either influenced by or powered by ChatGPT. Here's a closer look at what's available today.
AI tools from big tech
The first category of AI-based tools includes those offered by big tech companies. These tools are meant to integrate with your current workflows, and are probably the most accessible for the everyday investor. Microsoft, which has invested over $10 billion in OpenAI (the creator of ChatGPT), particularly stands out for how quickly it has embraced AI.
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In addition to using ChatGPT to change the Bing search experience, Microsoft is actively working to integrate ChatGPT functionality directly into Office productivity tools like Excel. If you currently use spreadsheets to track your investments or come up with new trading ideas, this could be a game-changer. Using Microsoft 365 Copilot, you can analyze Excel spreadsheet data using natural language prompts. So, for example, you could ask a question like: "Why are the revenues of Coinbase Global improving this quarter?" and you would get a fairly sophisticated response within seconds.
Crypto trading bots
The next category of AI-based tools includes crypto trading bots. These bots can either be hosted directly on a cryptocurrency exchange, or they can be integrated with a cryptocurrency exchange via an API. In basic terms, these crypto trading bots carry out a specific trading strategy that you designate. While many of the readily available trading strategies are designed for short-term investors, there are actually some crypto trading bots that are designed to carry out dollar-cost averaging strategies, making them more suitable for long-term investors.
Things get really interesting when you add ChatGPT into the mix. Automated trading bots are nothing new, but ChatGPT-powered trading bots are. What many people may not realize is that ChatGPT -- in addition to generating traditional text-based content -- is also capable of generating computer code. Thus, you could type a prompt like "Give me the computer code for a momentum trading strategy for Bitcoin" into ChatGPT, and it will generate the appropriate computer code.
When I used this prompt on ChatGPT, for example, it wrote the code in Python and optimized it for trading on Binance. Once you have the code, you can start to do some very interesting things with it, like optimizing it for a particular variable or backtesting it on previous market data. Once you're satisfied with the strategy, you can put your crypto trading bot to work.
AI, social media, and crypto
While there are some trading platforms that already enable you to tap into the "wisdom of the crowd" to make better investment decisions, I think the real innovation is going to come via social media platforms such as Twitter. Being able to tap into the raw data of what people around the world are saying about a particular crypto on a minute-by-minute basis could be priceless. You literally have your hands on the pulse of the market, and AI tools will let you analyze it 24/7.
That's why I'm keeping an eye on the recent Twitter crypto trading integration with eToro, a social investing platform that specializes in letting you track, follow, and mimic the trades of others. Right now, if you type "$ETH" into Twitter search, you will get a trading chart of Ethereum, together with a long list of recent tweets about this crypto. Soon you will be able to trade Ethereum with your eToro account (if you have one already set up) directly within Twitter. It's easy to see how AI-powered Twitter could make this entire process even more powerful and streamlined, especially given Elon Musk's fascination with artificial intelligence and meme coins.
Buyer beware
While all of these developments surrounding AI are certainly exciting, there are obviously a number of factors to consider. First and foremost, keep in mind that ChatGPT is only trained on data through 2021, so it has little or no idea of what has happened in the world since then -- like the big crypto meltdown of 2022!
Secondly, keep in mind the crypto space is overrun with scams, so be careful where you put your money. Crypto trading bots are particularly prone to these scams. The BBC, for example, recently profiled the case of a crypto trading bot that lured in tens of thousands of users worldwide before people realized it was a giant Ponzi scheme. So always do your due diligence.
That being said, I'm enormously bullish on the future of crypto trading and the new AI-based tools that are starting to appear in the market. As long as you take some of the more outlandish claims with a grain of salt and keep your eye on long-term returns, these AI tools can offer a powerful way to turbocharge your crypto portfolio.
