Crypto Trading Bots: US Regulators Sound Alarm on AI-Powered Systems


  • US regulators warn investors about AI trading bots in the crypto market, saying they can’t guarantee profits.
  • The rise of AI bots in crypto trading has raised concerns about deception, especially for new investors.
  • Claims of daily returns from these bots are met with skepticism due to the unpredictable nature of cryptocurrencies.

The United States, home to a rapidly growing cryptocurrency market, has two major regulatory bodies overseeing this space: the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). 

The ongoing debate over which agency holds jurisdiction has created uncertainty. While the CFTC considers most altcoins as commodities, the SEC takes an opposing stance. 

CFTC’s latest warning to crypto investors

The CFTC, in its latest advisory titled “Customer Advisory: Public Cautioned Against Artificial Intelligence Fraud,” has issued a stern warning to cryptocurrency investors. This advisory underscores the agency’s concern regarding the proliferation of AI-driven trading bots in the crypto market.

Recently, enthusiasts have witnessed a surge in the popularity of AI-powered trading bots. This surge can be attributed, in part, to the November 2022 debut of ChatGPT, an AI language model. While AI has showcased its capabilities in various domains, it could be a silver bullet for trading success. 

What’s concerning is that these AI algorithms are often marketed to investors as groundbreaking inventions. The CFTC wants to set the record straight: AI, like humans, cannot predict the future.

The risks of AI crypto trade bots

The CFTC’s advisory cautions investors about the risks associated with AI trade bots. It underscores that artificial intelligence, while powerful, cannot guarantee profitable outcomes in the volatile world of cryptocurrencies.

The prevalence of social media platforms and ‘influencers’ makes it even easier for scammers to spread misinformation,” warns the agency.

Melanie Devoe, Director of the CFTC’s Customer Education and Outreach Office, urges investors to be vigilant and wary of deception. Where trust is scarce, scammers often lure unsuspecting individuals with fictitious trading strategies. By merging AI with crypto, these fraudsters create more convincing narratives.

The CFTC acknowledges that new investors in the space, who may need to be better versed in its intricacies, are particularly vulnerable to these deceptive tactics. In April 2023, several state regulators in the US took legal action against an AI trade bot that claimed it could generate daily returns of up to 2.2% using artificial intelligence.

The skepticism surrounding such claims is understandable. If an AI bot could consistently deliver daily returns of 2% or even 1%, it would have the potential to amass extraordinary wealth in months. The question arises: Why would developers of such lucrative algorithms bother selling monthly subscriptions when they could amass fortunes through compounding?

The challenge of crypto volatility

Another significant factor to consider is the inherent volatility of the market. Even if AI bots could analyze data with impeccable accuracy, they would still be incapable of predicting the speculative surges and news-driven price swings that often define cryptocurrency movements.

In June 2023, a blockchain analysis company called Arkham Intelligence brought an interesting incident to light. They reported a case where a cryptocurrency trading bot borrowed a massive $200 million in a flash loan, only to make a very modest profit of just $3.24.

On a related note, some major cryptocurrency exchanges, like Bitget, have been looking into using AI bots within their platforms.

In July 2023, the CEO of Bitget, Gracy Chen, explained that their AI bot, the Commodities Trading Advisor, operates by continually receiving historical strategy data, analyzing it, and processing the information. This process allows the bot to learn and adapt over time.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decisions.

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Joseph Katala

Joseph is a seasoned professional in the crypto and blockchain industry, boasting over three years of experience. His expertise spans a wide range of roles, from crypto writing and analysis to blockchain development. With a deep passion for the transformative potential of these technologies, he is committed to fostering understanding within the crypto and blockchain spheres through media.

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