According to Steve Rosenblum, the founder and CEO of Libertify, Artificial Intelligence (AI) driven investment solutions can assist investors in making “timely adjustments to asset allocation.” This means investors using such a solution will be able “navigate the volatile crypto landscape while maintaining a balance between risk and potential returns.”
Using AI to Rebalance a Portfolio
Rosenblum also told Bitcoin.com News that investors who use AI-driven solutions such as Libertify’s personalized AI risk management solution are better placed to overcome cognitive biases which often cloud their judgement. However, the CEO argued that AI-driven solutions will only become a widely adopted tool if and when prospective investors are better educated. Rosenblum also said that regularly rebalancing a portfolio in order to take advantage of evolving trends can potentially help investors maximize returns.
The Libertify CEO further listed the nine most common mistakes made by crypto investors. Below are all of Rosenblum’s answers to questions sent to him via Telegram.
Bitcoin.com News (BCN): An investor’s mind is said to be full of cognitive biases that often lead to what some describe as inertia and irrational economic decisions. Quite often crypto investors can be reluctant to change their approach, even when all the indicators suggest they should. From your experience, what do you think can help investors free themselves from a given strategy or approach when investing or trading?
Steve Rosenblum (SR): Indeed, cognitive biases can cloud judgement. To counter this, education is key. Empowering investors with data-driven insights and AI-driven recommendations can act as a rational counterbalance to emotions. Additionally, fostering a mindset of adaptability and continuous learning can help investors embrace changes when market indicators warrant it.
BCN: Your company describes itself as an AI-powered crypto seatbelt. Can you tell our readers what this “seatbelt” protection is about and why this is needed?
SR: Absolutely. Think of our “crypto seatbelt” as an automatic safety mechanism. Just as a seatbelt protects you in a car, Libertify’s AI-driven solutions protect your investments.
Every single day, Libertify is hard at work, meticulously calculating the optimal risk exposure for each asset and every individual user. This isn’t a one-size-fits-all approach; it’s tailored precision for each unique portfolio. Imagine having a dedicated financial advisor who considers the nuances of the market on a daily basis.
But here’s where it gets even more exciting – Libertify goes a step further. It provides investors with clear recommendations, guiding them on whether it’s prudent to exchange a portion of their asset holdings for stablecoins. This proactive approach takes into account the ever-changing landscape of the market, offering insights into the next 24 hours to navigate uncertainty with confidence.
Our tools, like the Trailing Stop Loss and Take Profit feature, automatically adjust your portfolio based on predefined risk thresholds. This way, even during volatile market swings, your investments remain safeguarded.
BCN: Your company recently introduced a new risk management platform called AI Audit for retail investors. How does this help investors manage risk and how does this approach to risk assessment differ from, say, a professional or institutional investor?
SR: AI Audit is a groundbreaking tool that analyzes the embedded risks within a portfolio. It offers instant risk optimization proposals, ensuring that your investments align with your risk appetite. Our AI leverages behavioral insights and past transaction data to provide personalized recommendations, bridging the gap between individual investors and institutional-grade risk management.
BCN: Can AI help investors with asset allocation in the volatile crypto market where investors have to dynamically adjust the allocation based on the daily market risk?
SR: Absolutely, AI is tailor-made for such dynamic markets. Our AI-driven solutions assess real-time market data, behavioral patterns, and your unique risk profile. This enables timely adjustments to asset allocation, helping investors navigate the volatile crypto landscape while maintaining a balance between risk and potential returns.
BCN: In the crypto industry, the buy-and-hold strategy has worked well for many investors. Based on onchain analytics, long-term holders are believed to own 70% of the BTC supply. What are your thoughts on “hodling” versus regularly rebalancing one’s portfolio based on market conditions?
SR: HODLing is undoubtedly a successful strategy, but it’s important to adapt to changing market dynamics. Regularly rebalancing allows investors to take advantage of evolving trends and reduce risk exposure. With AI-backed insights, investors can confidently make informed decisions, about whether to continue holding or adjust their portfolio in response to market conditions. Flexibility is the key to maximizing returns while managing risk.
BCN: Emotions are often investment killers. Can you tell us the most common mistakes crypto investors make that drag down their returns?
SR: Certainly, let’s dive deeper into the most common mistakes that crypto investors often make, which can unfortunately lead to diminished returns. These errors often stem from cognitive biases that cloud judgement, causing investors to deviate from sound investment strategies.
- Herd Mentality — One prevalent cognitive bias is the “herd mentality.” This occurs when investors follow the crowd without thorough analysis. For instance, during a rapid price surge, the fear of missing out (FOMO) can prompt investors to buy a token without considering its underlying value. When the hype subsides, prices can plummet, resulting in losses.
- Anchoring Bias — This involves fixating on a reference point, often the initial price at which a token was purchased. If the price drops significantly, investors might hold onto it, hoping for a rebound to recover their initial investment. This can lead to missed opportunities to reallocate funds to better-performing assets.
- Overconfidence — Overconfidence bias is another pitfall. Investors might believe they possess superior knowledge and foresight, causing them to take excessive risks. For instance, they might allocate a substantial portion of their portfolio to a single token based on speculative insights, disregarding the potential for unexpected market shifts.
- Loss Aversion — This is a tendency to fear losses more than value gains. Investors might hold onto underperforming tokens, hoping they’ll eventually break even, even when superior investment opportunities arise. This bias can result in missed chances to reposition funds for better potential returns.
- Confirmation Bias — This leads investors to seek information that confirms their existing beliefs while ignoring contradictory evidence. For instance, an investor bullish on a token might exclusively seek positive news, disregarding negative indicators that could suggest a downturn.
- Sunk Cost Fallacy — This bias occurs when investors consider past investments as a factor in decision-making. For instance, if an investor has already spent a significant amount on a token, they might hold onto it even when new evidence suggests it’s not a promising investment, further contributing to losses.
- Recency Bias — This relates to the tendency of giving more weight to recent events when making decisions. This can lead investors to chase trends based on short-term performance, without considering the token’s long-term fundamentals.
- Gambler’s Fallacy — This bias involves expecting past outcomes to influence future events, even in situations where they’re unrelated. For instance, if a token has experienced multiple consecutive price increases, an investor might assume another increase is imminent, ignoring the underlying market dynamics.
- Endowment Effect — The endowment effect leads investors to value assets they already own more than equivalent assets they don’t. This can result in holding onto tokens simply because they’re part of the investor’s current portfolio, even if other opportunities offer better potential returns.
Being aware of these cognitive biases is the first step towards making more rational investment decisions. Utilizing AI-powered tools like Libertify’s AI solution can provide objective insights that counteract these biases, helping investors make well-informed choices aligned with their long-term financial goals.
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