AI-powered solutions for cryptocurrency markets will become more stable
The blame game is not productive
Aggregation improves access to liquidity
Artificial intelligence brings stability through predictive analysis
AI-powered solutions for cryptocurrency markets will become more stable as they reduce slippage and uncertainty, deliver deeper liquidity access and effective predictive analysis.
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During the G20 Summit in February, the International Monetary Fund (IMF) considered “banning private cryptocurrencies” as an option to solve the global debt restructuring crisis. And now I realize that this will not help in solving the problems associated with it. However, the US Securities and Exchange Commission (SEC) seems very intent on regulating cryptocurrencies using brute force.
The recent lawsuits targeting Binance and Coinbase are a result of the SEC’s misguided approach to cryptocurrencies. It exacerbates growing frustration among industry stakeholders. Stifling emerging technologies is neither fair nor profitable. Fostering creativity to solve existing problems is rather to be expected, given the United States’ progressive history.
Instability is one of the main points of the SEC’s arguments against cryptocurrencies. It is indeed a major pain point for emerging cryptocurrency markets that are facing access to suboptimal liquidity and high volatility. But long-term solutions are emerging quickly, fueling the steady development of artificial intelligence. Organizers must acknowledge positive efforts and provide an environment that helps them reach their full potential.
The blame game is not productive
There has been a lot of controversy recently among those speaking out for or against cryptocurrencies. From entrepreneurs to regulators and senators, everyone has mostly played the blame game in one way or another. But one must pause to wonder if this is productive at all.
Not real. While regulators must reform their attitude towards future technology, creators must identify and accept the limitations of cryptocurrencies, and immediately overcome them. Besides scalability and composability, there are three main concerns here: fragmented liquidity, response time, and inefficient order execution.
The total value of the blockchain ecosystem is over $64 billion across protocols. Similarly, despite nearly a year of bearish sentiment, cryptocurrencies have a total market capitalization of over $1 trillion. However, when something like LUNA or FTX fails, investors face huge losses.
Moreover, institutional investors and large traders often experience significant slippage while trading cryptocurrencies. This and the inability to exit positions in a timely manner is due to isolated liquidity and execution latency. It hurts the goals of cryptocurrency adoption and gives reasons for regulators to continue their offensive in the name of investor protection.
Ironically, protecting investors and boosting their confidence is actually crucial to the long-term success of cryptocurrencies. This highlights another level of collaboration between innovators and regulators through positive efforts. It remains to be seen what the regulators will do, but the cryptocurrency industry is already embracing viable solutions.
Aggregation improves access to liquidity
Legacy financial systems enable high-frequency trading with processes that guarantee access to deep liquidity even under great stress. These frameworks are extremely beneficial for the cryptocurrency markets as well. It is a complete waste of money to leave so much available liquidity underutilized in silos.
Innovative liquidity pools, backed by smart order routing mechanisms, are redeeming cryptocurrency traders. To ensure the best execution, they settle trades against multiple pockets of liquidity rather than a single exchange or trading platform. This enhances price discovery and reduces slippage on larger trades.
Besides improving trade execution on a daily level, liquidity pools also put cryptocurrency investors in a better position to deal with black swan events. Since these systems do not provide liquidity from individual entities, but rather exploit the entire ecosystem, they easily provide safer exit points.
In this respect, aggregation is particularly important for Tier 2 and Tier 3 exchanges that often do not have sufficient liquidity for high volume trades. This applies to centralized exchanges (CEXs) and decentralized exchanges (DEXs) but smart liquidity pools can serve both. However, liquidity pooling alone cannot bring stability to cryptocurrencies.
Artificial intelligence brings stability through predictive analysis
For event-based, low-latency intelligent aggregation protocols to achieve their full potential, they must be able to accurately predict the market’s course. This has been a major challenge for cryptocurrency trading systems so far, which also explains the heavy impact of volatility on most investors.
But times are changing now thanks to the rapid development of artificial intelligence. Leveraging artificial intelligence makes liquidity pools smarter, with advanced predictive analysis. This is made possible by hybrid AI models that use deep learning, neural networks, machine learning, etc. By efficiently processing the huge, unstructured data sets that are unique to the cryptocurrency markets, it identifies patterns that normal systems cannot.
AI-powered liquidity pools are still new, but they can already predict market movements for up to 20 seconds with an accuracy of 90% or more. Additional training will improve these numbers, triggering a positive feedback loop with greater adoption. This is the beginning of a more reliable future for high-frequency cryptocurrency trading.
Cryptocurrency markets will become more stable as they reduce slippage and uncertainty, deeper access to liquidity, and effective predictive analysis. Investors will enjoy a secure ecosystem and not have to worry about being protected with brute force.
Cryptocurrency creators go to great lengths to fulfill their transaction obligations. It falls to the authorities to lend their support now, and help build a better progressive environment for them, the industry and the world at large.
