AI as a financial advisor – is it really a good idea?

AI, AI, AI… it may seem that everyone is talking about artificial intelligence lately. In the world of finance and cryptocurrencies, there are even voices that artificial intelligence may be an ideal financial advisor who, thanks to its ability to process huge amounts of data, will surpass humans. But is artificial intelligence ready to fulfill this role? Despite the promising possibilities, reality shows that artificial intelligence as a financial advisor faces many challenges.

Artificial intelligence and finance – what are the current limitations?

Although artificial intelligence is becoming more advanced, it is currently unable to provide comprehensive financial advisory services. Why? Firstly, artificial intelligence bases its analyzes on historical data, and the world of finance, especially cryptocurrencies, is dynamic and full of variables that cannot be predicted solely based on the past. There will certainly be people here who will protest that ChatGPT has access to the network. Well, both yes and no. The option of searching the web is already available even to users of the free version of LLM from OpenAI, but the quality of the information searched leaves much to be desired. Perplexity would be a much better tool for this purpose. Interestingly, the GPTs Store, a store with personalized chat bots from OpenAI, already has several GPTs dedicated to all digital asset enthusiasts. The question is, however, will you dare to entrust your BTC or ETH to the advice of a chatbot that often hallucinates?

Artificial intelligence very often does not understand the context, which is crucial for a human advisor. For example, changes in cryptocurrency regulations can have a huge impact on prices, but AI that has not been properly trained may not take this factor into account in its analyses. Therefore, investors using only artificial intelligence may be at risk of their portfolio not being adequately protected against sudden market changes. It is worth noting that market reactions to political decisions can significantly affect prices and trends, and artificial intelligence cannot always understand the subtleties of such situations. This is why artificial intelligence still has a long way to go before these solutions can become full-fledged financial advisors.

MEV bots – effective, but are they safe?

In the context of cryptocurrencies, artificial intelligence is used in the so-called MEV bots (Miner Extractable Value), which are programmed to optimize transactions on the blockchain, especially on Ethereum. MEV bots exploit gaps in the trade structure to make a profit, for example by catching the mistakes of human traders. A good example of such a deal is the MEV bot operated by 2Fast, which earned $1.9 million in just 20 seconds in January this year.

While such bots can be effective and generate large profits, they are also extremely risky. First, users who rely on MEV bots may not realize that there is a risk that the bot will trigger at an unfavorable time, especially when the market is volatile. Secondly, these bots can sometimes conflict with other transactions, leading to costly failures. Finally, the legal regulations regarding MEV bots are still unclear, which further increases the risk of using such solutions.

AI versus personalization of financial advice

One of the main challenges facing AI as a financial advisor is the lack of personalization. A traditional financial advisor takes into account his client’s individual goals, preferences and risk appetite, which is crucial to investment success. Artificial intelligence, although it is getting better at analyzing numbers (especially in the case of the o1 preview model from OpenAI), is often unable to adapt its recommendations to the unique needs of the investor.

An example would be the reaction of artificial intelligence to sudden drops in cryptocurrency prices. Algorithms may recommend immediate selling, which would be a mistake for more balanced investors as they may be willing to endure declines while waiting for a rebound. AI does not yet understand the nuances of long-term investment strategy, and making decisions based solely on technical analysis can lead to losses.

On the other hand, it is also worth showing the positive use of artificial intelligence in the analysis of the cryptocurrency market today. One such example is the TPRO Network platform, where AI is used to analyze complex systems to determine key impacts on individual metrics. Such a simulation using AI makes it possible to reproduce market volatility.

The future of financial advice with AI

Even though AI as a financial advisor is currently not fully effective, the future of this solution looks more optimistic. The development of technologies such as machine learning and generative artificial intelligence may mean that in the future AI will be able to analyze the market in real time, monitor changes and adapt its recommendations almost instantly. Thanks to genAI, communication with humans is carried out using natural language, which significantly shortens the distance.

Evolving AI systems will be able to automatically adapt investment strategies to changing market conditions, taking into account a variety of factors such as new regulations, political decisions and even social trends. Then AI could become a valuable support for investors, providing not only quick analyzes but also more personalized recommendations. An extreme but effective example of the effectiveness of such systems are the bots mentioned in today’s MEV text.

When will an AI financial advisor advise you when to buy BTC?

Although artificial intelligence has great potential in the world of finance, it cannot yet be considered an ideal financial advisor. AI has its limitations – from problems with personalizing recommendations, through lack of understanding of context, to the risk of hallucinations. However, as technology advances, artificial intelligence can become a key tool to support investors, allowing for better control of markets and more effective decision-making in a dynamic financial environment.