In 2024, Artificial Intelligence (AI) became an integral part of the financial markets, including the Forex market. Forex trading, which once relied on human intuition and analysis, now uses powerful algorithms capable of processing massive amounts of data and making real-time decisions. These technologies provide more accurate forecasts and allow traders to quickly adapt to changes in market conditions, significantly improving trading efficiency.

One of the most significant changes has been the implementation of automated trading systems that use AI to analyze data and execute trades. These systems are able to consider not only technical indicators but also news, economic changes, and even public sentiment, making it easier to predict the behavior of currency pairs. Using machine learning, algorithms can improve their strategies and adapt to changes in the market, making trading more flexible and profitable.

AI-powered trading bots have become increasingly popular among traders, providing them with 24/7 access to the markets. Unlike traditional trading systems, these bots can operate continuously and make decisions based on complex models that are not limited to conventional rules. This gives traders the ability to automate their strategies and significantly reduce the impact of human factors, which is especially important in the volatile Forex market.

However, despite all the advantages, using AI in Forex trading also comes with certain risks. For instance, algorithms might misinterpret data or fail to react to unexpected market events, potentially leading to losses. Furthermore, there is the risk of over-reliance on automated systems, which can limit flexibility and the ability of traders to make decisions in non-standard situations. Therefore, it is important to combine AI technologies with human experience and knowledge to minimize potential mistakes.

In conclusion, AI has significantly changed the Forex market in 2024, opening up new opportunities for traders and investors. These technologies allow for more accurate and faster data analysis, improved trading strategies, and risk minimization. Despite the challenges that have arisen, automated trading using AI continues to evolve and will likely play an increasingly important role in the future of financial markets.

As banks, hedge funds, and other major institutions explore using AI in their trading strategies, it could fuel rapid flows of capital and create hidden risks of financial crisis. This, at least, is the fear of some who study financial risk.

Imagine a future where large-scale investors rely on AI-driven algorithms to identify and execute trades. It’s plausible that trillions of dollars could move in and out of assets rapidly, causing massive economic consequences that regulators, and even the humans running those financial entities themselves, don’t fully understand.

In a recent paper, Jon Danielsson of the London School of Economics and Andreas Uthemann of the Bank of Canada highlight how AI could be highly useful for officials regulating the behavior of individual firms.

“AI excels and outperforms humans in risk modeling and management,” they write, and it “is making rapid inroads into detecting fraud, consumer protection, and more.” But, they argue, things get significantly more problematic when moving from the micro to the macro level.

“AI systems used by the private sector are better at finding optimal solutions than their human counterparts, but at the risk of such solutions being socially undesirable,” the authors wrote.

“Financial markets are particularly susceptible to such outcomes because they have strong complementarities that can lead to undesirable phenomena such as liquidity hoarding, bank runs, and fire sales,” they found.

“Worse, these complementarities will probably strengthen as AI accelerates the adoption of best-of-breed methodologies for measuring and managing risk.”

These concerns are on the radar of central banks worldwide, which view maintaining financial stability as part of their mission.

A Bank of England staff blog post last month noted that “if multiple firms utilize opaque or black box models in their trading strategies, it would be difficult for both firms and supervisors to predict how actions directed by models will affect markets.”

Federal Reserve Governor Lisa Cook, in a speech on Monday, stated, “The potential widespread adoption of powerful new AI, especially generative-AI applications, inevitably raises questions about potential benefits and risks to the stability of the financial system as a whole.”

If you’re into 22-page papers on systemic risk, the Danielsson-Uthemann paper mentioned above is worth your time.

Why it matters: Quarterly data suggests we've reached a new normal for VC investment in crypto.

By the numbers: Deal volume for the fourth quarter was up 13% from the third quarter, to $2.5 billion from $2.2 billion, according to Pitchbook's latest Crypto VC Trends report.

For the full year, total crypto funding ended at $10 billion over 1,940 deals, down slightly from $10.3 billion across 1,936 deals in 2023.

Yes, but: Although the total number of VC dollars going to crypto startups increased last quarter, the number of deals declined by 14.6% from 411 in Q3 to 351 in Q4.

Zoom in: Valuations increased for early-stage startups in 2024 but remained muted for more-established companies in the sector.

The median pre-money valuation at the seed stage jumped 70%, from $11.8 million in 2023 to $20 million in 2024, and early-stage valuations more than doubled, from $25 million to $52 million, in the same period.

Late-stage valuations, meanwhile, rose 3.8% from a median $43.7 million to $45.3 million year over year.

Between the lines: Deal sizes followed a similar trend, with the median check size at the seed stage jumping 20%, from $2.5 million in 2023 to $3 million in 2024.

Early-stage median check sizes increased by 26.9%, from $3.8 million to $4.8 million, in the same period.

But late-stage investment lagged, with the median deal size falling slightly to $6.3 million last year from $6.4 million the year before.

Why it matters: If confirmed, Lutnick would oversee department efforts to regulate AI and help spur its growth.

The groups that signed say they prioritize the safe and responsible deployment of AI.

What they're saying: In a letter to Senate Majority Leader John Thune, Minority Leader Chuck Schumer, and the rest of the chamber, the groups highlighted support for some of Lutnick's positions.

These include Lutnick's backing of export controls, standard setting at NIST, bolstering domestic chip manufacturing, and expanding AI energy and data center infrastructure.

"Lutnick has shown a strong commitment to responsible AI policy and a clear vision for ensuring the United States remains at the forefront of AI innovation and security," the groups wrote.

Americans for Responsible Innovation, The Center for AI Policy, Encode, Future of Life Institute, and Institute for Progress signed the letter.

What we're watching: Lutnick at a nomination hearing last week was adamant about maintaining U.S. competitiveness.

The Trump White House has shown a hands-off approach to regulating AI, including by rescinding a Biden-era executive order aimed at deploying the technology safely.

We’ll be watching for what an AI "action plan" entails, as Trump has called for.

What's next: The Senate Commerce Committee will vote on Lutnick's nomination on Wednesday.

Why it matters: The passage came days after Attorney General Kris Mayes issued an opinion stating that delta-8 can only be sold by entities licensed to sell cannabis.

This bill would permit sales at other retailers like smoke shops that the opinion could threaten.

Zoom in: The proposal passed by the Senate Thursday with heavy Republican support and a handful of Democratic votes.

It would prohibit sales to people under 21 and ban marketing to children.

Licensing and regulation would be overseen by the Arizona Department of Agriculture, not the Arizona Department of Health Services (ADHS), which enforces laws on medicinal and recreational marijuana.

What they're saying: Though Mayes' opinion is not legally binding, ADHS told Axios on Wednesday it recognizes "the risk that intoxicating synthetic and lab-derived THC products pose to public health and safety, and are determining if and how this will affect enforcement."

Elsewhere at the Capitol this week…

• 📄 Next Friday is the deadline for committees to hear bills from the opposite chamber, so expect a lot of action in the week ahead. That means anything that hasn't already passed out of its original chamber is likely dead.
• 🚧 After initially rejecting legislation requiring cities of at least 75,000 to allow duplexes, triplexes, fourplexes, fiveplexes, and townhomes on single-family-zoned lots, the House doubled back and approved the bill Tuesday. It now heads to the Senate.
• 🏡 Gov. Katie Hobbs has yet to sign or veto a high-profile bill aimed at encouraging developers to build more starter homes, a decision that could come today.
• ❌ GOP lawmakers plan to send Hobbs two identical versions of a bill she vetoed last week to make illegal immigration a state crime. If she vetoes them, as expected, Senate President Warren Petersen said they're willing to put the issue on the November ballot.
• 🛑 Democratic lawmakers tried to force a vote in both chambers on legislation known as the Right to Contraception Act through parliamentary maneuvers, but Republicans blocked them.
• 🗳️ Anyone could preemptively challenge the constitutionality of a citizen initiative in court before a proposed ballot measure goes up for a vote under a separate measure Senate Republicans passed Monday. It's part of recent Republican efforts to make it more difficult to enact voter-approved laws, which are often pushed by liberal groups that can't get their proposals through the GOP-controlled Legislature. It now goes to the House.

Why it matters: Dollars are the coin of the realm on-chain, but Europe is the first major currency region with clear rules of the road for stablecoins.

The latest: Societe Generale-Forge is deploying its stablecoin, EUR coinvertible (EURCV), on the Stellar blockchain, as it pursues a multichain strategy.

It's common for stablecoin issuers to spread assets across multiple blockchains, which are effectively the nation-states of the decentralized web.

EURCV started with Ethereum, but Stellar is known for being fast, cheap, and it makes it easy to tokenize assets (such as major currencies).

The big picture: Société Générale is in the top 100 of the world's largest banks, and it has been cautiously tiptoeing into crypto products for years now.

Reality check: Compared to dollar-backed stablecoins, euro stablecoins barely register in the market.