What AI Has to Say About the Latest Bitcoin Surge….or Bubble

It’s 2021 again, at least for veteran cryptocurrency Bitcoin. After tanking in the wake of last fall’s FTX scandal, Bitcoin — along with several other cryptocurrencies — has recovered well, surging over 67% in 2023. It’s almost as if the nightmare of 2022 was just that — a nightmare we’ve all woken up from.

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

Bitcoin continues to elude us

Except – cleverness really isn’t the whole story. Despite being considered the “Cadillac” of cryptocurrencies, Bitcoin is still a volatile asset – and, as history has shown, it can make big gains or big losses in a matter of days. In fact, its volatility is even more pronounced given the behavior of almost every asset – from gold to silver to oil to pork bellies – which have fallen over the past few weeks as cryptocurrencies and Bitcoin in particular have risen. This is not a new phenomenon; Bitcoin’s amazing rise from its inception in 2009 to 2022 has been unique, surging hundreds of percent – far more than any other asset.

Why the difference? The economy is the same economy, interest is the same interest, inflation is the same inflation for all assets – and yet cryptocurrencies react differently than almost all others. Of course, there are things we don’t understand about the bitcoin market – who is buying and why, what makes bitcoin or crypto in general a “good buy”, how to time the market, etc.

Experts have attempted to pinpoint reasons for Bitcoin’s recent rally, from “election uncertainty” to inflation to FOMO or, more recently, bank failures such as Silicon Valley. But these factors should also apply to other assets — those that are falling. If what works for other assets doesn’t work for Bitcoin – and vice versa – we need to come up with some new ideas on how to understand Bitcoin investing. Otherwise, the money we invest in Bitcoin is not an “investment” — it is gambling, and gambling is not a way of running an investment portfolio.

It’s not just about AI, it’s about AGI

It is clear that Bitcoin is a volatile investment and a potentially very profitable one. The question for investors is how to take control of this investment and reduce the impact of volatility on their portfolio. A great way to do this is by using advanced artificial intelligence – algorithms that can collect and analyze far more data than human experts, taking into account the thousands of factors affecting bitcoin prices, including those that are affecting does not appear to affect other assets.

Essentially, we want our AI system to predict the future prices of a highly volatile asset – an asset that has been behaving contrary to popular belief for over a decade. Is something like this even possible – also 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 data from thousands or even millions of sources and constantly update their investment model to develop the most accurate forecasts possible.

New technology for new financial challenges

That’s a huge improvement over standard machine learning-based AI, which is limited to a single model based on historical and existing data. As such, it doesn’t really lend itself to volatile assets like bitcoin, which can change its price significantly in a very short period of time – an indication that it’s extremely sensitive to immediate and imminent influences. Of course, AGI can be applied to any asset – but it’s particularly important for the very sensitive bitcoin and crypto markets in general. AGI can take this new and upcoming data and change its prediction model as needed. Investors connected to these systems can thus keep pace with the market – or even stay ahead of it.

Well, to manage volatility differently

It’s difficult enough to control volatility in traditional market investing — the ones for which hundreds of analytical tools have been developed over the decades; it’s even harder to do this for a new asset that clearly has its own unique behavior patterns. As such, many investors would tend to stay away from Bitcoin — but there’s plenty of money to be made for those who get the investment right. Fortunately, there is hope for savvy investors who want to invest smartly and minimize their volatility risk. When AGI becomes a reality, investors looking for stability will feel more comfortable with Bitcoin and other cryptocurrencies – adding interest and value to the entire market. In fact, such technology could be a game changer for investing in general, as even traditional markets can experience bouts of high volatility at some point.