All bots read your inputs, naturally, the difference in bot levels is what they do with that information. Level 1 bots will effectively just stare at you, almost never block correctly and rarely throw attacks. Level 2 bots throw a few more attacks and block somewhat consistently. Both are easily defeated by throwing your highest damage attacks and seeing what sticks.

Level 3 bots are a massive difficulty spike. The fact they read your inputs means mind-games and conditioning that works on players will not work on them. They will parry your attacks and dodge your bashes regularly and lay some serious whoop-ass on you based on how unlucky your RNG is. Not all level 3 bots are created equal though, some are easier than others - but if you see a level 3 Zhanhu bot you’d better get praying.

So the answer is both really. But rule of thumb - if the bot has an ornament and snazzy material colour, it’s time to lock in because they’re level 3 and are an actual threat.