Boost Your Crypto Trading with AI-generated Edge

Boost Your Crypto Trading with AI-generated Edge

Large language models like ChatGPT could revolutionize sentiment analysis in finance, allowing traders to more effectively capitalize on market irrationalities in the rapidly evolving world of cryptocurrencies.

Large language models like ChatGPT could supercharge sentiment analysis, a key aspect of trading.

If you ask a large language model (LLM) like ChatGPT how to choose an LLM, it will give you an answer such as this from GPT-4:

“Choosing the best large language model is a lot like speed dating: you ask it several  questions, hope it impresses you with its wit and intelligence, and then decide if you want to spend the rest of your project together!”

In the world of finance, the principle of supply and demand serves as a foundational mechanism for determining the fair price of any investment class at any point in time. This economic concept holds that the equilibrium price of an investment is established when the quantity demanded by buyers matches the quantity supplied by sellers.

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Fundamental factors have long played a critical role in assessing traditional equity markets, where investors analyze a company’s financial health, industry position and overall economic climate to determine its intrinsic value. Key metrics such as earnings, revenue and debt-to-equity ratios provide a clear image of a company’s performance, enabling investors to make buy/sell decisions. Nonetheless, such metrics are not available is still in the rapidly evolving world of cryptocurrencies.

The absence of financial statements and difficulty of estimating the impact of emerging technologies makes it hard to value digital currencies by traditional pricing methods. Furthermore, the extreme price volatility further challenges the efficiency of fundamental analysis in the cryptocurrency space.

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In the absence of traditional valuation methods, the price often appears to be determined by the sentiment around the overall cryptocurrency market and/or a particular crypto token. The perception and emotional reactions of market participants often play a more prominent role in driving price fluctuations and shaping financing decisions.

For a rational trader, such irrationality presents a chance in the market – if only she could quickly and accurately capture the mood (aka sentiment) of the market. For several years, working with sentiment seemed like an insurmountable challenge. Day traders mostly relied on cryptocurrency news headlines, Discord insider chats and announcements. And systematic traders had to invest considerable effort into development of just average-quality sentiment analysis tools. The limitations of technology at the time made it difficult to efficiently process and understand the vast amounts of data generated by worldwide media.

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The revolution in transformers and LLMs, in particular, allowed traders to approach sentiment at scale, delivering an incredible improvement over traditional methods that relied on manual scoring and Word2Vec models.

The competitive landscape of software-based technology corporations vying to create the best LLM is rapidly evolving now. The table below provides an impressive illustration of this ongoing race, showcasing some of the key players and their respective contributions to the field:

These LLMs continue to boost in size and make better performance, surprising even their creators. And while people debate about whether LLMs are the 1st indications of artificial general intelligence (AGI) or just mindless parrots, their use in different industries and finance in particular  will only accelerate.

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The  capacity revolution brought about by transformers and LLMs could significantly transform the cryptocurrency trading landscape. With the capability to assess market sentiment on a larger scale, traders can potentially be able to capitalize more effectively on market irrationalities.

You can learn more about LLMs, their types and applications in our most up-to-date white paper, available here.

Nick Baker.


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This page is simply meant to provide information. It does not constitute a direct offer to purchase or sell, a solicitation of an offer to buy or sell, or a suggestion or endorsement of any goods, services, or businesses. does not offer accounting, tax, or legal advice. When using or relying on any of the products, services, or content described in this article, neither the firm nor the author is liable, directly or indirectly, for any harm or loss that may result. Read more at Important Disclaimers and at Risk Disclaimers.

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