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Dr. Anna Becker from Endotech on What AI Has to Say About the Latest Bitcoin Surge….or Bubble

It's 2021 all over again, at least for veteran cryptocurrency Bitcoin. After tanking in the wake of the FTX scandal last fall, Bitcoin– as well as some other crypto currencies – have rebounded nicely, up over 67% in 2023. It's almost as if the nightmare of 2022 was just that – a nightmare that we've all woken up from.

Crypto may be a new kind of asset, but its most recent activity proves an age-old investment adage – buy low and sell high. And if you bought Bitcoin at its post-scandal low of about $16,000, consider yourself a savvy investor.

Bitcoin Continues to Elude Us

Except – savviness really isn't the whole story. Although considered the “Cadillac” of cryptocurrencies, Bitcoin is still a volatile asset – and, as history has shown, can make great gains, or great losses, within just days. In fact, its volatility is even more pronounced given the behavior of nearly all assets – from gold to silver to oil to pork bellies – which in recent weeks have fallen, as crypto currencies, and bitcoin in particular, have risen. This is not a new phenomenon; Bitcoin's amazing rise from its creation in 2009 through 2022 was unique, increasing hundreds of percent – far more than any other asset.

Why the difference? The economy is the same economy, the interest rates are the same interest rates, the inflation is the same inflation for all assets – yet crypto currencies are reacting differently than nearly all the others. Clearly there are things we don't understand about the Bitcoin market – who's buying and why, what makes Bitcoin or crypto in general a “good buy,” how to time the market, etc. 

Pundits have attempted to point out reasons for Bitcoin's latest rally, from “election uncertainty” to inflation to FOMO or more recently banking failures like Silicon Valley. But those factors should apply to other assets – the ones that are falling - as well. If what works for other assets doesn't work for Bitcoin – and vice-versa – we need to come up with some new ideas about how to understand Bitcoin investing. Otherwise, the money we put into Bitcoin isn't an “investment” - it's a gamble, and gambling is no way to run an investment portfolio.

It’s Not Just About AI, but About AGI

It's clear that Bitcoin is a volatile investment, and a potentially very profitable one. The question for investors is how to get control of that investment, and reduce its volatility impact on their portfolio. One good way to do that is using advanced artificial intelligence – algorithms that can gather and analyze far more data than human pundits can, taking into account the thousands of factors that affect Bitcoin prices, including the ones that apparently do not affect other assets.

In essence, we want our AI system to predict future prices of a very volatile asset – one whose behavior has bucked common wisdom for over a decade. Is such a thing even possible – even for AI? The answer is yes – if we use advanced AI, in the form of artificial general intelligence (AGI). These advanced systems, currently under development, constantly take in data from thousands, or even millions of sources, and constantly update their investment model in order to develop the most accurate predictions possible. 

New Technology for New Financial Challenges

That's a vast improvement over standard machine learning-based AI, which is limited to a single model based on historical and existing data. As such, it's not really suitable for volatile assets like Bitcoin, whose price can change significantly in a very short period of time – an indication that it is extremely sensitive to immediate and upcoming influences. Of course, AGI can be applied to any asset – but it's especially important for the very sensitive Bitcoin and crypto markets in general. AGI can take that new and upcoming data and change its prediction model as needed. Investors who are plugged into these systems can thus keep up with the market – or even remain one step ahead of it.

Now to Navigate the Volatility Differently

It's difficult enough to control volatility in traditional market investments – the ones for which hundreds of analytical tools have been developed over the decades; it's even harder to do that for a new asset that clearly has its own unique behavior patterns. As such, many investors would tend to stay away from Bitcoin – but for those who get the investment right, there's lots of money to be made. Fortunately there is hope for savvy investors who want to make investments intelligently – minimizing their exposure to volatility. As AGI becomes a reality, investors seeking stability will feel more comfortable with Bitcoin and other crypto currencies – increasing interest, and value, for the entire market. In fact, such tech could be a gamechanger for investment in general because at some point, even traditional markets can experience periods of great volatility.

 

 

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