If you think this is an article about how artificial intelligence can make you an expert in crypto trading, let’s stop you right here. We’re not advocating asking ChatGPT for predictions about which currency to buy.
This is something that’s difficult for even the most seasoned traders because this market is largely sentiment-driven. Generative AI can examine historic trends, but, as we know, these are not predictors of future successes in the crypto market.
Instead, in this article, we’re looking at how you can use ChatGPT as a tool to aid your research process. Could it prove as useful for the crypto sphere as customer support outsourcing was for customer service? That remains to be seen.
Understanding ChatGPT’s Capabilities
Let’s start by examining what ChatGPT can and can’t do. It’s a very clever piece of software that learns as it develops, but it’s still very new. The buzz about it is due to the fact that there’s never been a natural language processing model trained on such extensive amounts of data before. It’s, therefore, adept at understanding prompts and, more importantly, their context.
This capability allows it to scan thousands of pages online to get you information on the topic you’re interested in. It can then present that information in a palatable, easy-to-understand manner. It’s capable of making some assumptions based on what it reads and delivering insights. However, these aren’t always correct.
Furthermore, the machine can’t think and reason like a human. It works on logic, and, as any seasoned trader will tell you, this is a negative when it comes to trading. People don’t always do the most logical thing when it comes to investments. You need human empathy to understand what might cause them to panic or to buy ferociously.
We only have to look at the 2021 example of GameStop. In this case, a consortium of small investors pushed up GameStop shares by 1,700%, creating chaos on Wall Street by beating brokers at their own game. This move caught many professionals by surprise, and there was no way that any machine could predict it.
In fact, we’re willing to say that generative AI would never consider this type of movement. Why not? Because it was fueled in part by investors wanting to make money but also by those wanting to teach Wall Street a lesson.
In short, while ChatGPT can be a valuable research tool, it can’t perform a fundamental analysis.
input it receives. However, it’s important to recognize that ChatGPT is not a financial advisor or investment expert. It lacks the ability to perform fundamental analysis, technical analysis, or evaluate market trends in the same way a seasoned investor or financial analyst would.
The Role of AI in Investment Decision-Making
That’s not to say that AI is useless in financial decision-making. Many companies are using it for:
- Data analysis
- Pattern recognition
- Predictive modeling
- Identifying potential opportunities and market inefficiencies
However, the powers-that-be then hand this information over to human analysts for confirmation. Even the experts with custom-built models understand that it’s crucial to approach AI-driven investment tools with caution and skepticism.
The advantage of running the information through AI is that you get insights without human bias. Assuming, of course, that you use the right prompts. This can be helpful in detecting opportunities you might otherwise have overlooked.
However, market conditions can change rapidly, and past performance is not always indicative of future results. Therefore, relying solely on AI-generated recommendations for investment decisions is risky.
Factors to Consider Before Using ChatGPT for Crypto Investments
Experts battle to say what the crypto market will do on a daily basis. Take the 2017 run on Bitcoin, for example. Everyone and their aunt bought the currency, causing it to soar in value. A few weeks later, the bubble burst, and the value dropped to less than half.
The driver for this was the hype about Bitcoin. People thought it was easy money, and so they invested heavily. As with any marketable commodity, this pushed the prices up. And naturally, there were those who took advantage and sold at the highest points, which caused an inevitable crash.
We see this pattern repeated in Bitcoin a few times over. Maybe not to the same extent as in 2017, but it happens. If we were to ask ChatGPT to evaluate this currency, what would it say?
Let’s consider it logically. It’s too late to get in on the ground floor with Bitcoin. The currency, even at its lowest current levels, is expensive to buy. Now factor in the enormous price fluctuations, and it looks like Bitcoin would be a bad investment.
We asked ChatGPT, “Should I invest in Bitcoin?” It prefaced its answer by saying it couldn’t provide financial advice. It brought up the volatility and security issues. It also said you need to consider your long-term risk tolerance. While it didn’t say yes or no, it was clear about us being cautious with investing.
This is good advice, but what if you were a newbie looking for advice on what to invest in? While there are downsides to investing in Bitcoin, it’s the first and longest-standing currency. Will you make money in the short term? That’s not easy to say, but the long-term prospects look good.
Why? Market sentiment affixes more stability to Bitcoin than to most other cryptocurrencies. What’s more, there’s always the human element of nostalgia to consider. Some people might buy Bitcoin simply because it was the first one.
Finally, it’s one thing to speak to a financial consultant who has a fiduciary responsibility to provide good advice. You also have recourse against professionals who act in the wrong way. ChatGPT doesn’t feel any compunction about your investment outcomes, and you can’t sue the machine if something goes wrong.
Conclusion
ChatGPT can be a useful tool for research. It can provide valuable insights and information. However, it’s unwise to act on this without further research. This is true in traditional financial markets and even more so in the crypto sphere.
Perform your due diligence before making any investment decisions.