CFTC Warns: Don't Bet Your Crypto on AI Bots!



by FARUK IMAMOVIC

CFTC Warns: Don't Bet Your Crypto on AI Bots!
© Getty Images/Joe Raedle

The United States Commodity Futures Trading Commission (CFTC) has issued a stark warning to cryptocurrency investors: beware of artificial intelligence (AI) trading bots. Amidst a growing trend of these bots in the crypto market, the CFTC stresses that relying on AI for significant cryptocurrency gains is fraught with risks.

This warning comes against the backdrop of an increasing number of investors turning to AI-driven solutions in search of lucrative returns in the volatile crypto market. The allure of AI trading bots, often touted for their sophisticated algorithms and promises of high yields, has caught the attention of many.

However, the CFTC emphasizes that these technologies are far from infallible and often lead to disappointing results. Melanie Devoe, the director of the CFTC’s Office of Customer Education and Outreach, highlighted the role of social media and influencers in spreading misleading information about the capabilities of AI in trading.

“The prevalence of social media platforms and 'influencers' makes it even easier for fraudsters to spread false information,” she stated, urging investors to be cautious and skeptical of such claims.

The Reality Behind AI Trading Bots

The CFTC's cautionary stance is underpinned by recent events in the cryptocurrency sector.

In April 2023, U.S. state watchdogs took action against YieldTrust.ai, a platform promoting an AI trading bot claimed to generate returns of up to 2.2% per day. Regulators from Montana, Texas, and Alabama alleged that this platform was operating a Ponzi scheme, primarily as there was no evidence supporting the existence or efficacy of the AI bot as advertised.

Another example underscoring the CFTC's concerns occurred in June 2023, when a crypto trading bot undertook a $200 million flash loan, resulting in a mere $3.24 profit. This incident, highlighted by blockchain analysis firm Arkham Intelligence, demonstrates the unpredictability and potential pitfalls of using AI in crypto trading.

In contrast, some major crypto exchanges are exploring AI bot use with a more cautious approach. Gracy Chen, managing director of Bitget, mentioned their Commodities Trading Advisor AI bot in July 2023. This bot operates by receiving and processing historical strategy data, facilitating a self-learning mechanism.

Chen explained, “AI strategies help users choose and create strategies more intuitively by only needing a simple rate of return number and price chart, eliminating the need to fill in complex parameters like in algorithms”.

In light of these developments, the CFTC advises investors to conduct thorough research on the background of companies or traders before entrusting their funds to trading bots or trade signal providers. This approach is imperative in an industry rife with high risks and the potential for misinformation.

United States