Beating the Bots: In Defense of Human Traders

Consider examining the data from another perspective, and you’ll notice that March 18th is particularly significant: It was the day with the highest volume of crypto bot trades in the previous six months, as indicated by the user @whale_hunter’s data on the Dune Analytics platform.

On March 18th, as indicated by the Dune dashboard, approximately $700 million worth of transactions were conducted by bots such as BonkBot, Maestro, and Banana Gun. These bots span various blockchain platforms, ranging from Ethereum to Solana. On that day alone, they accumulated around $5.5 million in fees for their operations.

By delving deeper into the Dune dashboard, you’ll discover that these trading bots have accumulatively earned more than a quarter of a billion dollars ($220 million) in fees. They contribute significantly to the total volume on Decentralized Exchanges (DEXs), amounting to approximately $33 billion. As one research report from Delphi Digital stated, they are often referred to as “the new crypto cash cows.”

Is it likely for a retail cryptocurrency trader like yourself to consistently outperform trading bots? While these bots excel at utilizing past data quickly, the most successful traders are those who anticipate future trends – something that algorithms often struggle with. In essence, taking a more deliberate approach could potentially provide you with an advantage.

That’s the area where a novel kind of platform, based on human knowledge and verifiable credibility, truly outperforms.

Initially, let’s clarify the boundaries of our automated crypto-trading companions. It might seem impossible for humans to outperform a swarm of relentless robots in the most challenging task – outsmarting the market. However, the key to success lies in the distinction between how bots and humans think strategically.

Can bots really beat the market?

According to Ali Yahya, a previous AI researcher now investing in crypto at Andreessen Horowitz, today’s AI primarily uses labor-intensive inductive reasoning to reach its conclusions. This involves processing massive amounts of data to identify connections between them. When prompted, it fits the “quilt” of links it has formed to respond and generate an answer.

AI struggles particularly hard with intricate subjects that have limited data available, known as long-tail topics. In these instances, the data needed by AI models to create their “quilt” of connections is sparse, making the quilts incomplete and resulting in unsatisfactory responses when prompted. As Yahya puts it, AI models currently reflect (rather than clarify, as humans do) the disorder and complexity found in the phenomena they analyze.

AI bots don’t have the ability to develop theories about future events or provide explanations for specific situations. Instead, they draw from a vast pool of past examples to mimic patterns and responses that have occurred before. They excel in speed, but when it comes to making strategic decisions, their rapid pace is often outmatched by a more deliberate, analytical approach.

Despite the increasing use of trading bots, a more human-focused approach could balance this trend. Our goal is to encourage human traders to publicly share their forecasts in a transparent, verifiable manner, allowing others to validate them and potentially follow those traders’ future predictions. Verification is crucial: We’ve all heard stories about questionable influencers misguiding their followers for personal profit.

On SanR, traders can openly express whether they think a specific token’s price will rise or fall at a certain point. These forecasts are documented as NFTs on the blockchain, ensuring they cannot be altered if the prediction turns out to be incorrect later on. As more predictions are made, both accurate and inaccurate ones accumulate, providing insights into each trader’s predictive abilities. Other users can examine this data to evaluate each trader’s predictive prowess, secure in the knowledge that the information hasn’t been tampered with.

By establishing a decentralized system where individuals exchange market indicators freely, they can publicly release these insights without restrictions, all while ensuring alignment of interests. What makes this setup even more advantageous is that all predictions are recorded on the blockchain, making them accessible for verification anytime, and once published, they cannot be modified subsequently.

Reminder: Opinions in this article belong solely to the writer and may not align with the perspectives of CoinDesk, Inc., its proprietors, or its associates.