August 23, 2020

Analyzing Cryptocurrency with Artificial Intelligence

U.S banking giants have advanced a patent that uses Artificial Intelligence (AI) to analyze and organize cryptocurrency-related information in order to help traders predict market trends and lower risk of investment.
7 min

U.S banking giants have advanced a patent that uses Artificial Intelligence (AI) to analyze and organize cryptocurrency-related information in order to help traders predict market trends and lower risk of investment.

A financial services subsidiary of Capital One has lodged a patent application that further builds upon an AI technology their parent company had patented in June. Capital One is ranked 98th on the Fortune 500 list with US $421 billion in assets (as of June 2020) and a market capitalization of US $30 billion (as of 19 August 2020). The news comes at a time where big business is increasingly becoming interested in developing crypto-related technologies, cementing the industries legitimacy and fortifying its role in shaping the future.

The crypto-sphere is relatively new, and with any novel market, it is common to see investors rush to make investments while lacking knowledge, trading experience and relevant historical data. Capital One’s analysis technology aims at overcoming the pitfalls that new crypto investors may face and seeks to remedy the tendency of new investors suffering quick losses through short-term market movements. The big-bank appears to be making in-roads at creating clarity for traders in the often clouded digital-assets information sphere. Seeing traditional financial conglomerates invest in developing the crypto space provides optimism for a more agile and advanced industry.

With any frontier, foresight is difficult, but Capital One’s AI fact-checker might provide a light in the cave of misinformation and crypto-related news. Unlike other markets, cryptocurrencies trade 24/7-365 and are uniquely subject to factors such as blockchain forks, airdrops and hacks. Market prices are influenced by a wide range of factors including news on exchanges, stock market performance, ICO’s, social media and market influences. The plugged-in investor requires knowledge on the blockchain technologies behind the coins themselves whilst also having information regarding their intended use cases, roadmaps and progress. Tracking and applying this data in real time is overwhelming for the seasoned investor let alone the uninitiated. “Accordingly,” as stated in the patent's filing, “there is a need for a centralized platform that analyses speculation, news, and other cryptocurrency-related information as well as provides a recommendation and/or implements the provided recommendation.”

AI Components of Verification

The AI utilizes a 3-component analysis system. Firstly, it receives information from a “plurality of modules” or data inputs from varying sources such as social media, cryptocurrency markets and fiat markets. Next, the detected information is run through a “credibility analysis engine” which cross-references information based on the analysis and assigns it a weighting. Thirdly, it predicts a market trend based on the relevant weightings of information and generates a personalized trading decision based on this trend.

Illustration of the first analysis component. Source: USPTO

Artificial Intelligence and Cryptocurrency

AI is lauded as a revolutionary technology for every industry and the crypto space is no exception. Machine learning and natural language processing is re-inventing the way in which we interact with our devices and for the data-rich crypto markets, this is fertile ground in which machine learning systems can be utilized. As indicated by Capital One, the shift toward algorithmic trading powered by AI seems well underway and given its proven capabilities in virtually every major financial market, its future role in cryptocurrency is undeniable.

While the allure of artificial intelligence appears to promise to transport us to the conquered skies of crypto, its integration will take time and everyday traders will not be made redundant overnight.  Nevertheless, its relevance and impact is already visible in the industry, from refined order execution to detecting illegitimate trade volume, bots and scammers. As AI applications continue to roll out we can expect them to aid and assist crypto’s major industry players - not only widening accessibility but increasing their strike rate too. While the future looks bright, it would be wise to be vigilant of the shadows that these new lights will cast.
For access to the patent application publication click here.