AI Trading Risks in Crypto Markets: Who Takes Responsibility When It Fails?

By: WEEX|2025/12/23 15:00:00

Main Takeaways

AI trading is already core market infrastructure, but regulators still treat it as a tool — responsibility always stays with the humans and platforms behind it.
The biggest risk in 2025 is not rogue algorithms, but mass-adopted AI strategies that move markets in sync and blur the line between tools and unlicensed advice.
The next phase of AI trading is defined by accountability and transparency, not performance — compliance is now a survival requirement, not a constraint.

AI Trading Risks in Crypto Markets: Who Takes Responsibility When It Fails?

Artificial intelligence has quietly shifted from a useful trading aid to a core market mechanism. By 2025, an estimated 70% of institutional crypto trades are executed through algorithms. As AI increasingly sits at the center of price formation, the real challenge has changed.

The question is no longer how powerful the technology is, but who is responsible when it goes wrong.

AI Is Now Standard — Regulation Hasn’t Moved

Although AI trading represents a new era, authorities have made their position clear: new technology does not create new exemptions. AI trading is legal in principle, but it remains fully subject to existing rules on market manipulation, wash trading, and insider activity.

In regulatory terms, AI is treated as nothing more than a faster, more scalable tool.

By 2025, this distinction matters. If an algorithm violates the Commodity Exchange Act, the fact that it “made its own decision” offers no protection. Responsibility still rests with the humans and entities behind it. This leads to a harder question: when similar AI systems act in unison, is a sudden market crash genuine price discovery or coordinated manipulation by machines?

The Emerging Gray Zone: Mass-Produced Strategies

The greatest systemic risk now lies not in rogue algorithms, but in synchronized ones. As trading platforms provide retail investors with AI strategy tools, individual decision-making is quietly being erased. Thousands of accounts may follow the same model, reacting to identical signals at the same moment. During market stress, this creates liquidity traps — identical sell orders amplify volatility, trigger liquidations, and spark flash crashes that no single trader intended.

Meanwhile, regulators are questioning the true nature of these tools. When an opaque AI system directs trades for tens of thousands of users without explaining its reasoning, it begins to resemble an unlicensed investment advisor rather than a neutral tool. “Black box” models are increasingly seen as accountability risks, not features of innovation.

Regulation Shifts in 2025: From “Can We?” to “How Must We?”

By 2025, regulators have moved past debating whether AI trading should exist. Enforcement now focuses on how it is governed.

One clear example is the CFTC’s updated AI fraud guidance, which directly targets “AI-washing” — platforms that use the language of machine learning to disguise Ponzi schemes or misleading yield products. Using AI as a marketing shield now carries heavier penalties, including criminal exposure.

Equally important is transparency. Virtual Asset Service Providers are increasingly expected to maintain explainable AI logs. When a suspicious trade occurs, “the model decided” is no longer an acceptable response. Regulators want a clear, auditable explanation of how the system reached that outcome.

The Core Conflict: Who Is Liable When AI Fails?

When AI-driven trades lead to major losses or regulatory breaches, responsibility typically falls into a three-way dispute:

Developers may face liability if the system is designed to manipulate markets or generate artificial volume.
Platforms that sell or promote AI strategies risk being held to fiduciary or advisory standards, especially when users rely on their models.
End users are still, in most jurisdictions, legally responsible for actions taken through their API keys.

This creates friction. Users feel misled by “the platform’s AI,” while the law often responds with a simple rule: your key, your responsibility. The industry is approaching landmark cases that will test whether software design, updates, or defaults can constitute negligence.

A Practical Compliance Checklist for the AI Era

For anyone deploying or using AI trading tools, compliance now requires discipline, not optimism:

Confirm licensing: Ensure the platform is authorized to offer automated strategies in your jurisdiction.
Watch for red flags: Be cautious of products or tools that emphasize certainty over risk disclosure, such as promises of guaranteed returns or fixed yields.
Restrict permissions: Never grant withdrawal rights via API, and enforce stop-losses at the exchange level.
Demand transparency: Legitimate providers should offer clear documentation on model behavior during extreme volatility, not just performance charts.

Conclusion

AI trading is no longer judged by how advanced it looks, but by how accountable it is. The next phase of market evolution will not be defined by smarter algorithms, but by clearer responsibility. In this environment, compliance is no longer a constraint on innovation — it is the condition for survival.

About WEEX

Founded in 2018, WEEX has developed into a global crypto exchange with over 6.2 million users across more than 130 countries. The platform emphasizes security, liquidity, and usability, providing over 1,200 trading pairs and offering up to 400x leverage in crypto futures trading. In addition to traditional spot and derivatives markets, WEEX is expanding rapidly in the AI era — delivering real-time AI news, empowering users with AI trading tools, and exploring innovative trade-to-earn models that make intelligent trading more accessible to everyone. Its 1,000 BTC Protection Fund further strengthens asset safety and transparency, while features such as copy trading and advanced trading tools allow users to follow professional traders and experience a more efficient, intelligent trading journey.

Foreword: Today, the People's Bank of China's website published the "Notice of the People's Bank of China, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration for Market Regulation, China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission, State Administration of Foreign Exchange on Further Preventing and Dealing with Risks Related to Virtual Currency and Others (Yinfa [2026] No. 42)", the latest regulatory requirements from the eight departments including the central bank, which are basically consistent with the regulatory requirements of recent years. The main focus of the regulation is on speculative activities such as virtual currency trading, exchanges, ICOs, overseas platform services, and this time, regulatory oversight of RWA has been added, explicitly prohibiting RWA tokenization, stablecoins (especially those pegged to the RMB). The following is the full text:

To the people's governments of all provinces, autonomous regions, and municipalities directly under the Central Government, the Xinjiang Production and Construction Corps:

Recently, there have been speculative activities related to virtual currency and Real-World Assets (RWA) tokenization, disrupting the economic and financial order and jeopardizing the property security of the people. In order to further prevent and address the risks related to virtual currency and Real-World Assets tokenization, effectively safeguard national security and social stability, in accordance with the "Law of the People's Republic of China on the People's Bank of China," "Law of the People's Republic of China on Commercial Banks," "Securities Law of the People's Republic of China," "Law of the People's Republic of China on Securities Investment Funds," "Law of the People's Republic of China on Futures and Derivatives," "Cybersecurity Law of the People's Republic of China," "Regulations of the People's Republic of China on the Administration of Renminbi," "Regulations on Prevention and Disposal of Illegal Fundraising," "Regulations of the People's Republic of China on Foreign Exchange Administration," "Telecommunications Regulations of the People's Republic of China," and other provisions, after reaching consensus with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, and with the approval of the State Council, the relevant matters are notified as follows:

I. Clarify the essential attributes of virtual currency, Real-World Assets tokenization, and related business activities

(I) Virtual currency does not possess the legal status equivalent to fiat currency. Virtual currencies such as Bitcoin, Ether, Tether, etc., have the main characteristics of being issued by non-monetary authorities, using encryption technology and distributed ledger or similar technology, existing in digital form, etc. They do not have legal tender status, should not and cannot be circulated and used as currency in the market.

The business activities related to virtual currency are classified as illegal financial activities. The exchange of fiat currency and virtual currency within the territory, exchange of virtual currencies, acting as a central counterparty in buying and selling virtual currencies, providing information intermediary and pricing services for virtual currency transactions, token issuance financing, and trading of virtual currency-related financial products, etc., fall under illegal financial activities, such as suspected illegal issuance of token vouchers, unauthorized public issuance of securities, illegal operation of securities and futures business, illegal fundraising, etc., are strictly prohibited across the board and resolutely banned in accordance with the law. Overseas entities and individuals are not allowed to provide virtual currency-related services to domestic entities in any form.

A stablecoin pegged to a fiat currency indirectly fulfills some functions of the fiat currency in circulation. Without the consent of relevant authorities in accordance with the law and regulations, any domestic or foreign entity or individual is not allowed to issue a RMB-pegged stablecoin overseas.

（II）Tokenization of Real-World Assets refers to the use of encryption technology and distributed ledger or similar technologies to transform ownership rights, income rights, etc., of assets into tokens (tokens) or other interests or bond certificates with token (token) characteristics, and carry out issuance and trading activities.

Engaging in the tokenization of real-world assets domestically, as well as providing related intermediary, information technology services, etc., which are suspected of illegal issuance of token vouchers, unauthorized public offering of securities, illegal operation of securities and futures business, illegal fundraising, and other illegal financial activities, shall be prohibited; except for relevant business activities carried out with the approval of the competent authorities in accordance with the law and regulations and relying on specific financial infrastructures. Overseas entities and individuals are not allowed to illegally provide services related to the tokenization of real-world assets to domestic entities in any form.

II. Sound Work Mechanism

(III) Inter-agency Coordination. The People's Bank of China, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of virtual currency-related illegal financial activities.

The China Securities Regulatory Commission, together with the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the State Administration of Foreign Exchange, and other departments, will improve the work mechanism, strengthen coordination with the Cyberspace Administration of China, the Supreme People's Court, and the Supreme People's Procuratorate, coordinate efforts, and overall guide regions to carry out risk prevention and disposal of illegal financial activities related to the tokenization of real-world assets.

(IV) Strengthening Local Implementation. The people's governments at the provincial level are overall responsible for the prevention and disposal of risks related to virtual currencies and the tokenization of real-world assets in their respective administrative regions. The specific leading department is the local financial regulatory department, with participation from branches and dispatched institutions of the State Council's financial regulatory department, telecommunications regulators, public security, market supervision, and other departments, in coordination with cyberspace departments, courts, and procuratorates, to improve the normalization of the work mechanism, effectively connect with the relevant work mechanisms of central departments, form a cooperative and coordinated working pattern between central and local governments, effectively prevent and properly handle risks related to virtual currencies and the tokenization of real-world assets, and maintain economic and financial order and social stability.

III. Strengthened Risk Monitoring, Prevention, and Disposal

(5) Enhanced Risk Monitoring. The People's Bank of China, China Securities Regulatory Commission, National Development and Reform Commission, Ministry of Industry and Information Technology, Ministry of Public Security, State Administration of Foreign Exchange, Cyberspace Administration of China, and other departments continue to improve monitoring techniques and system support, enhance cross-departmental data analysis and sharing, establish sound information sharing and cross-validation mechanisms, promptly grasp the risk situation of activities related to virtual currency and real-world asset tokenization. Local governments at all levels give full play to the role of local monitoring and early warning mechanisms. Local financial regulatory authorities, together with branches and agencies of the State Council's financial regulatory authorities, as well as departments of cyberspace and public security, ensure effective connection between online monitoring, offline investigation, and fund tracking, efficiently and accurately identify activities related to virtual currency and real-world asset tokenization, promptly share risk information, improve early warning information dissemination, verification, and rapid response mechanisms.

(6) Strengthened Oversight of Financial Institutions, Intermediaries, and Technology Service Providers. Financial institutions (including non-bank payment institutions) are prohibited from providing account opening, fund transfer, and clearing services for virtual currency-related business activities, issuing and selling financial products related to virtual currency, including virtual currency and related financial products in the scope of collateral, conducting insurance business related to virtual currency, or including virtual currency in the scope of insurance liability. Financial institutions (including non-bank payment institutions) are prohibited from providing custody, clearing, and settlement services for unauthorized real-world asset tokenization-related business and related financial products. Relevant intermediary institutions and information technology service providers are prohibited from providing intermediary, technical, or other services for unauthorized real-world asset tokenization-related businesses and related financial products.

(7) Enhanced Management of Internet Information Content and Access. Internet enterprises are prohibited from providing online business venues, commercial displays, marketing, advertising, or paid traffic diversion services for virtual currency and real-world asset tokenization-related business activities. Upon discovering clues of illegal activities, they should promptly report to relevant departments and provide technical support and assistance for related investigations and inquiries. Based on the clues transferred by the financial regulatory authorities, the cyberspace administration, telecommunications authorities, and public security departments should promptly close and deal with websites, mobile applications (including mini-programs), and public accounts engaged in virtual currency and real-world asset tokenization-related business activities in accordance with the law.

(8) Strengthened Entity Registration and Advertisement Management. Market supervision departments strengthen entity registration and management, and enterprise and individual business registrations must not contain terms such as "virtual currency," "virtual asset," "cryptocurrency," "crypto asset," "stablecoin," "real-world asset tokenization," or "RWA" in their names or business scopes. Market supervision departments, together with financial regulatory authorities, legally enhance the supervision of advertisements related to virtual currency and real-world asset tokenization, promptly investigating and handling relevant illegal advertisements.

（IX） Continued Rectification of Virtual Currency Mining Activities. The National Development and Reform Commission, together with relevant departments, strictly controls virtual currency mining activities, continuously promotes the rectification of virtual currency mining activities. The people's governments of various provinces take overall responsibility for the rectification of "mining" within their respective administrative regions. In accordance with the requirements of the National Development and Reform Commission and other departments in the "Notice on the Rectification of Virtual Currency Mining Activities" (NDRC Energy-saving Building [2021] No. 1283) and the provisions of the "Guidance Catalog for Industrial Structure Adjustment (2024 Edition)," a comprehensive review, investigation, and closure of existing virtual currency mining projects are conducted, new mining projects are strictly prohibited, and mining machine production enterprises are strictly prohibited from providing mining machine sales and other services within the country.

（X） Severe Crackdown on Related Illegal Financial Activities. Upon discovering clues to illegal financial activities related to virtual currency and the tokenization of real-world assets, local financial regulatory authorities, branches of the State Council's financial regulatory authorities, and other relevant departments promptly investigate, determine, and properly handle the issues in accordance with the law, and seriously hold the relevant entities and individuals legally responsible. Those suspected of crimes are transferred to the judicial authorities for processing according to the law.

（XI） Severe Crackdown on Related Illegal and Criminal Activities. The Ministry of Public Security, the People's Bank of China, the State Administration for Market Regulation, the China Banking and Insurance Regulatory Commission, the China Securities Regulatory Commission, as well as judicial and procuratorial organs, in accordance with their respective responsibilities, rigorously crack down on illegal and criminal activities related to virtual currency, the tokenization of real-world assets, such as fraud, money laundering, illegal business operations, pyramid schemes, illegal fundraising, and other illegal and criminal activities carried out under the guise of virtual currency, the tokenization of real-world assets, etc.

（XII） Strengthen Industry Self-discipline. Relevant industry associations should enhance membership management and policy advocacy, based on their own responsibilities, advocate and urge member units to resist illegal financial activities related to virtual currency and the tokenization of real-world assets. Member units that violate regulatory policies and industry self-discipline rules are to be disciplined in accordance with relevant self-regulatory management regulations. By leveraging various industry infrastructure, conduct risk monitoring related to virtual currency, the tokenization of real-world assets, and promptly transfer issue clues to relevant departments.

IV. Strict Supervision of Domestic Entities Engaging in Overseas Business Activities

（XIII） Without the approval of relevant departments in accordance with the law and regulations, domestic entities and foreign entities controlled by them may not issue virtual currency overseas.

（XIV） Domestic entities engaging directly or indirectly in overseas external debt-based tokenization of real-world assets, or conducting asset securitization activities abroad based on domestic ownership rights, income rights, etc. (hereinafter referred to as domestic equity), should be strictly regulated in accordance with the principles of "same business, same risk, same rules." The National Development and Reform Commission, the China Securities Regulatory Commission, the State Administration of Foreign Exchange, and other relevant departments regulate it according to their respective responsibilities. For other forms of overseas real-world asset tokenization activities based on domestic equity by domestic entities, the China Securities Regulatory Commission, together with relevant departments, supervise according to their division of responsibilities. Without the consent and filing of relevant departments, no unit or individual may engage in the above-mentioned business.

(15) Overseas subsidiaries and branches of domestic financial institutions providing Real World Asset Tokenization-related services overseas shall do so legally and prudently. They shall have professional personnel and systems in place to effectively mitigate business risks, strictly implement customer onboarding, suitability management, anti-money laundering requirements, and incorporate them into the domestic financial institutions' compliance and risk management system. Intermediaries and information technology service providers offering Real World Asset Tokenization services abroad based on domestic equity or conducting Real World Asset Tokenization business in the form of overseas debt for domestic entities directly or indirectly venturing abroad must strictly comply with relevant laws and regulations. They should establish and improve relevant compliance and internal control systems in accordance with relevant normative requirements, strengthen business and risk control, and report the business developments to the relevant regulatory authorities for approval or filing.

V. Strengthen Organizational Implementation

(16) Strengthen organizational leadership and overall coordination. All departments and regions should attach great importance to the prevention of risks related to virtual currencies and Real World Asset Tokenization, strengthen organizational leadership, clarify work responsibilities, form a long-term effective working mechanism with centralized coordination, local implementation, and shared responsibilities, maintain high pressure, dynamically monitor risks, effectively prevent and mitigate risks in an orderly and efficient manner, legally protect the property security of the people, and make every effort to maintain economic and financial order and social stability.

(17) Widely carry out publicity and education. All departments, regions, and industry associations should make full use of various media and other communication channels to disseminate information through legal and policy interpretation, analysis of typical cases, and education on investment risks, etc. They should promote the illegality and harm of virtual currencies and Real World Asset Tokenization-related businesses and their manifestations, fully alert to potential risks and hidden dangers, and enhance public awareness and identification capabilities for risk prevention.

VI. Legal Responsibility

(18) Engaging in illegal financial activities related to virtual currencies and Real World Asset Tokenization in violation of this notice, as well as providing services for virtual currencies and Real World Asset Tokenization-related businesses, shall be punished in accordance with relevant regulations. If it constitutes a crime, criminal liability shall be pursued according to the law. For domestic entities and individuals who knowingly or should have known that overseas entities illegally provided virtual currency or Real World Asset Tokenization-related services to domestic entities and still assisted them, relevant responsibilities shall be pursued according to the law. If it constitutes a crime, criminal liability shall be pursued according to the law.

(19) If any unit or individual invests in virtual currencies, Real World Asset Tokens, and related financial products against public order and good customs, the relevant civil legal actions shall be invalid, and any resulting losses shall be borne by them. If there are suspicions of disrupting financial order and jeopardizing financial security, the relevant departments shall deal with them according to the law.

This notice shall enter into force upon the date of its issuance. The People's Bank of China and ten other departments' "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" (Yinfa [2021] No. 237) is hereby repealed.

Former Partner's Perspective on Multicoin: Kyle's Exit, But the Game He Left Behind Just Getting Started

Kyle knew his game, so he decided to focus on playing the game he was good at and interested in.

Why Bitcoin Is Falling Now: The Real Reasons Behind BTC's Crash & WEEX's Smart Profit Playbook

Bitcoin's ongoing crash explained: Discover the 5 hidden triggers behind BTC's plunge & how WEEX's Auto Earn and Trade to Earn strategies help traders profit from crypto market volatility.

Wall Street's Hottest Trades See Exodus

This time there is no single triggering factor, but rather market anxiety about asset valuation, with many already skeptical of these valuations being too high, leading to investors choosing to retreat almost simultaneously.

Vitalik Discusses Ethereum Scaling Path, Circle Announces Partnership with Polymarket, What's the Overseas Crypto Community Talking About Today?

What was the most talked-about topic among foreigners in the last 24 hours?

Believing in the Capital Markets - The Essence and Core Value of Cryptocurrency

The core questions that make cryptocurrency truly interesting have yet to be answered at all

Polymarket's 'Weatherman': Predict Temperature, Win Million-Dollar Payout

They made a fortune by predicting the weather temperature. One made $1.11 million in a single trade, while another consistently earned tens of thousands of dollars.

$15K+ Profits: The 4 AI Trading Secrets WEEX Hackathon Prelim Winners Used to Dominate Volatile Crypto Markets

How WEEX Hackathon's top AI trading strategies made $15K+ in crypto markets: 4 proven rules for ETH/BTC trading, market structure analysis, and risk management in volatile conditions.

Key Market Information Discrepancy on February 9th - A Must-See! | Alpha Morning Report

1. Top News: This Week's White House Crypto Meeting Focuses on Stablecoin Yield, Banking Reps to Attend for First Time 2. Token Unlock: $MOVE

"2.5 Dip" Real Reason: Wall Street Deleveraging Induced Overreaction

Kyle's review of Hyperliquid sparks controversy, Solitude Bank officially opens, what are the overseas crypto communities talking about today?

What Was Top of Mind for Foreigners in the Last 24 Hours?

Cryptocurrency prices in the dumps, but the prediction market is going wild?

Only on Polymarket, the trading volume for the "US Super Bowl Champion" related prediction event has surpassed $700 million.

Decoding Strategy’s Latest Financial Report: After a $12.4 Billion Loss, How Long Can the Bitcoin Flywheel Keep Spinning?

When earnings reports become electrocardiograms of Bitcoin’s price, Strategy is not merely a company—it’s an experiment testing whether faith can overcome gravity.

Discover How to Participate in Staking

Staking is a digital asset yield product launched by the WEEX platform. By subscribing to Staking products, users can stake their idle digital assets and earn corresponding Staking rewards.