Can ChatGPT be the key to creating a crypto ETF

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The AI-powered chat bot that has taken the world by storm since the beta released in late 2022 has many predicted that an AI-powered future is upon us. It may be a little premature, but is it possible that ChatGPT is the secret sauce a crypto ETF needs to succeed?

Chatbots are ubiquitous at this point, and promises of an AI-dominated future have been made and failed, so many times that it’s almost become a cliché. That’s why the rise of ChatGPT, an AI-powered chatbot created by OpenAI, which is now receiving a $10 billion investment from MicrosoftMSFT, has been so striking. By entering a simple (or complex) question, program users can receive consistent, logical, and often correct answers. The breadth and depth of expertise demonstrated by the bot has many wondering how certain professions could compete with such a program; this includes the financial services space.

Automation, analytics and all sorts of sophisticated trading tools have long been harnessed by institutions to drive external returns, with an AI-powered ETF (AIEQAIEQ) posting returns in 2023 that outpace peers in the world. market. Jobs and roles are regularly augmented, or rendered completely obsolete, by the implementation of increasingly powerful and user-friendly tools.

After the difficult year (to put it mildly) that crypto-assets and crypto-commodities had in 2022, it is believed that unbiased and objective AI might be what the space needs. Let’s see how realistic this possibility is.

AI does not always outperform market returns. Although the returns generated by AIEQ for 2023, a short period, exceeded the market as a whole, the reality is that on a longer horizon, the exchange-traded fund (ETF) underperformed the S&P 500. This may be attributed to several factors. , including market volatility, political instability, a global pandemic and higher interest rates than at any time in decades. Regardless of the specific reasons given, the fact is that there is still a lot of judgment involved in asset allocation and decision making.

Even the most sophisticated AI-powered apps, at least at this stage, can only work with information provided for training purposes and reviewing news/events that have happened previously. Forecasting, as any market strategist will confirm, is a notoriously tricky business and difficult to pull off, even under the best of conditions. AI and predictive analytics are powerful tools, but they don’t guarantee accurate predictions.

The rules are still changing. Some of the trickiest issues surrounding cryptoassets and the creation of crypto products is the fact that the rules and regulations that govern how this space operates are still evolving. Although the Securities and Exchange Commission (SEC) has been considered by many to be the default regulator of the crypto space, and it has certainly filed enough lawsuits and other legal actions to reinforce this belief, this is only part of the conversation. Establishing an agreed-upon regulator is an important step in the crypto maturation process, but there are other things that need to be addressed as well.

Even seemingly mundane issues such as taxation, financial reporting, auditing, and disclosures regarding crypto-assets are still evolving; the rapid rise and fall in the reputation of proof of reserves is just the most recent illustration of this. Apart from the operational effects that such uncertainty has on investment decisions, the fact that these can (and most likely will) change will have an effect on investment theories. AI-based decision making can only react to these changes and may not have the ability to understand the nuance of these rapidly changing topics.

Bad actors can mislead investors. The harsh reality is that there are bad actors, unethical companies, and outright fraudsters that exist in every industry. FTX, and the allegations that have come to the fore as the bankruptcy and criminal trials progress, show how misled the investment community, regulators, policymakers and experienced investors can be. This recent fallout, dramatic as it is, is simply the latest in a string of crypto innovations that have proven to be at least partially based on questionable or unethical assumptions.

AI, using the same information, assumptions and recommendations that other market participants have access to, may not be able to determine which of this information is valid versus which is fraudulent. No matter how much data is processed or how powerful the AI ​​tool, bad actors who deliberately seek to deceive the market are always a problem.

Artificial intelligence continues to make inroads in a large number of industry sectors, and that includes the financial services space. As powerful as these tools are, however, significant work remains to be done before investors and regulators can trust AI to develop ETFs, crypto or otherwise.

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