How Significant is the Role of Bots in Cryptocurrency Trading?

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Cryptocurrency is a fairly recent and unregulated market that is becoming a real live lab for algorithmic high-frequency trading as well a battleground for the improvement and development of trading robots.


An industry with untapped potential


While Wall Street has an ever growing presence of bots, cryptocurrency markets have become a new trading ground to experiment with new techniques and take advantage of market manipulation. According to Forbes, the enhancement of trading software tools using machine learning and decentralized exchanges (DEXs) will introduce the next generation of trading bots in the industry.

Despite the increase of the use of algorithmic software in cryptocurrency trading, it is still a field pledged with a lot of improvement potential which will be unfolded by the ever-growing efficiency and the enhancement that AI and deep machine learning have to offer. Even if the future of exchanges and the interoperability of blockchain networks are still unclear, the Bot industry will always remain vital for traders and institutions by allowing them to minimize risk and execute large orders efficiently. Trading bots have already surpassed their own limitations and can now target mainstream investors with simpler interfaces and more conservative trading protections.


The diversity of local regulatory frameworks for cryptocurrencies and exchanges have also increased the ability for traders to profit on arbitrage spreads due to predictable arbitrage chances and market deficits. Moreover, bots have the ability to use market discrepancies caused by anomalies and manipulation to capitalize on or support with investor protection when dealing with negative exposure.

Bots are becoming more intelligent; the amplitude of data manipulation capabilities when integrating several data feeds and real-time indicators while allowing customization according to different trading preferences and techniques.


Bots were the main actors in the Bitcoin Uptrend


Bots give traders the ability to trade and monitor their positions in a customizable way so that they don’t have to be constantly worried about their next move. Apart from this, robots allow traders to detach themselves from the human emotional error which is one of the biggest threats to traders.

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During the meteoric rise of Bitcoin last year, many traders had already set up their bots to act according to a set of predefined rules making them huge profits. On the other hand, when it comes to the current crypto downslide, bots may have helped the market crash simply by being triggered and causing an endless spree of order execution that was capable of sending the price in a nosedive fall. But it was also during the last trend of Bitcoin and altcoins that trading bots became popular tools for automated trading in day trading markets. But trading robots can also be used with more nefarious intentions. The Wall Street Journal recently identified software capable of spoofing across the markets. Virgil Capital also came forth saying that the company used an army of bots to fight “enemy” bots in the market.


The long-term impact of Bots


Nowadays, trading tools are only in line with experienced professional traders as they are too sophisticated for regular investors. There is no standard API for exchanges which makes using bots pretty challenging and the great majority of them don’t have a good performance when it comes to trading in low volume exchanges like smaller cryptocurrency exchanges and DEXs.

However, all this increasing use of trading bots does not come without expense. Today, almost every intermediate and professional trader uses these software tools to make sure their moves are prepared to face specific circumstances and as such, the market is pretty much “triggered”. Humans have left the arena and there are now legions of trading bots in a constant battle for profit.

Many of the algorithmic trading tools also need to be downloaded and hosted on a user’s computer, which forces the users to keep their computer running 24/7 becoming dependent on their Internet connection and requiring regular maintenance.


What’s for sure is that trading bots will continue to be developed to meet different trading needs. Once the cryptocurrency industry sees a homogeneous regulation and a more stable environment, trading bots should begin to take off with the help of advanced AI and machine learning.