I'm a blockchain security specialist and writer living in NY.
Cryptocurrency and crypto trading are extremely new industries. Bitcoin, the first and biggest cryptocurrency, didn’t even exist ten years ago, but since it came around, the market has exploded and developed beyond any predictions.
Cryptos and their underlying technology, blockchain, have sparked a kind of revolution in the worlds of tech and finance, creating an environment where anyone — regardless of their wealth or fame — can spend, invest and trade with minimal costs and regulatory barriers.
The crypto world represents a new way of spending and investing that is free from intermediaries such as the government and independent rating agencies, which have always acted in favor of the big financial firms. For example, in the 2008 financial crisis, the federal reserve and the world three largest rating agencies (Fitch, Moodys, and S&P) are known to have collaborated with the bulge brackets of Wall Street to precipitate the crisis.
With the introduction of the cryptos, there’s a shift away from traditional trading, which has always been dominated by the same wealthy and well-connected big names. But now, as the crypto industry continues to grow, trends similar to the traditional finance we are used to are emerging. As the amount of data required to trade cryptos continue to grow, traders without sophisticated algorithms are finding themselves at a competitive disadvantage.
In the early days, the crypto community prided itself on inclusivity. Anyone with a computer and a basic understanding of the market could buy and sell crypto without the need for a huge startup fund or expansive network of contacts.
Unfortunately, with interest in the space growing and more people hopping on board, this has changed. Now, we’re in a position where those with more money and contacts have a big advantage in the crypto markets for a number of reasons, the main one being automation.
With well-designed, efficient algorithms, traders can make a lot more money with less effort, and in crypto trading, where the markets never sleep and volatility is commonplace trading algorithms have many benefits. They solve a variety of issues human traders have, such as reckless decision making, impulsive behavior, emotional investment, as well as human error and forgetfulness.
Instead of staying awake 24/7 to keep track of trades, sleep deprived and not at full capacity, an algorithm will see what is needed at any time and adjust investment and trades automatically.
However, there is a big drawback to algorithms-they are really difficult to create. You need an advanced programmer to build an effective trading algorithm. Most people don’t possess the level of skill required to do so or the money to hire a programmer to build it. In the long term, such an investment would be worth it however, the average person does not have the time nor the money needed to invest in an algorithm and wait for it to pay off.
This leaves regular people at a significant disadvantage to professional traders, companies and wealthy individuals.
So, what can the ordinary crypto trader do? There are some solutions in development right now to help level the playing field.
Some companies are working on solutions to bring back equal opportunity for all. For instance, Capitalise is working on a platform that allows users to write instructions in plain English, and then their software crafts a tailored algorithm to fit the instructions. Users can specify how much of a currency they want to buy, can customize their preferences, and order the algorithm to buy more or sell if the price hits a certain point.
If someone creates an algorithm that works well which they like, they will be able to share this with others through the platform, in exchange for tokens. This way, they can monetize their success and help others.
Another example is CryptoTrader, a blockchain based platform that provides traders with trading bots to enable them to automate crypto trading. The platform also allows traders to backtest their automated trading strategies. When a trader identifies a working strategy, they can opt to share it with other traders at a fee.
Gekko, an open source algorithmic trading platform, is offering a similar solution by enabling Bitcoin traders to define their own strategy in plain text and get trading bots to execute them. The platform is free and open to everyone.
As the amount of crypto trading data continues to burgeon, there is no doubt that the future is in the hands of algorithms. Successful trading is defined by accuracy and speed and there is no better way to achieve this than through blockchain-powered algorithmic solutions..
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