- A range of functionalities developed in the crypto ecosystem may help AI adoption
- Sentiment in the global cryptocurrency market has improved from its nadir at the end of last year
- We find a persistent negative correlation between Bitcoin and short-term US rates
- A factor driving cryptocurrency returns is a decline in risky asset volatility this year
- We provide some analysis on the risk premia attached to cryptocurrencies
Introduction: Crypto and AI
The digital currency ecosystem continues to keep investors interested, despite the extreme selloff of 2022. Regulatory scrutiny of various exchanges and funds remains intense, understandable given the numerous governance issues exposed in recent years. And yet, digital currencies, both private and public, continue to evolve.
The year has seen an historic surge in interest and investment in Artificial Intelligence, particularly Generative AI based on Large Language Models. As use cases surge, an intersection between blockchain-based digital financial infrastructure and artificial intelligence can be seen.
Already, content generated by AI is facing the challenge of authenticity and provenance of the data being used. Blockchain’s digital record system can improve trust in data integrity used by AI. The models used by AI can also be authenticated, tracked, and audited over the blockchain.
Also, given that crypto mining and blockchain-based transactions are computationally intensive, AI’s ability to process data at exceptionally high speed and efficiency can be a major boost to such activities.
Additional use cases are evolving. Given AI’s role in automation, it naturally follows that AI trading bots would be deployed to buy and sell cryptos, just as they do with common stocks. The 24/7 nature of crypto markets, unlike a typical stock market, lend themselves to automated trading, with AI driven strategies an inevitable lever. A quick internet search reveals numerous firms pursuing AI-driven crypto trading, with the trading tools fully integrated with major crypto exchanges.
Market enthusiasm over AI has given a boost to many crypto initiatives tied to AI, but beyond the hype, the authentication, provenance, and audit trail aspects of the blockchain are potentially significant solutions to some of the pitfalls that appear to be emerging with ever more sophisticated AI systems.
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Completed Date: 18 Jan 2023 11:04:34 (SGT)
Dissemination Date: 18 Jan 2023 11:04:34 (SGT)
Sources for all charts and tables are DBS Bank unless otherwise specified
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[1] An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.
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