Yoav Vilner

@YoavVilner

Will Blockchain Produce a New Generation of Retail Algorithmic Traders?

Even as cryptocurrency trading expands in popularity, the complexities of the market keep it somewhat inaccessible to many retail traders. Unlike the rigidly scheduled equities markets, cryptocurrencies are traded around the clock and experience significant volatility even from minute to minute.

For most everyday market participants, this means losing out on opportunity windows and an uncertain trading outlook. Yet, the challenging features have concurrently encouraged solutions that, while once pertaining exclusively to equities and other established asset markets, are now being given a technological upgrade thanks to blockchain.

Algorithmic trading tools were once solely the purview of sophisticated institutional investors. With automated searches, analytics, and preset trades programmed to execute if conditions were met, algorithmic trading meant decisions could be made in mere milliseconds.

Now cryptocurrency is getting the same treatment thanks to blockchain. For companies creating cryptocurrency trading platforms and those individuals seeking to pursue investments in the space, this could be an empowering tipping point for the entire crypto market.

Blockchain analytics deliver deeper predictive capabilities

Real-time analytics have become a staple of investing as traders look for any possible indicator of an asset’s future performance. In cryptocurrency, the field has quickly been gathering momentum to find answers in increasingly confusing waters.

Blockchain is already being used to upgrade many aspects of the analytics field, such as data creation and collection thanks to distributed ledger technology. This offers a more transparent and manipulation-proof data set to begin with.

Moreover, due to the highly volatile nature of cryptocurrencies, predictive analytics and big data offer an easier solution for evaluating market movements and their potential. With millions of price shifts occurring every day, it is often not feasible for traders to track several assets concurrently.

By combining extensive ledger data with predictive tools, traders can gain a better understanding of patterns and create strategies designed to capitalize on certain trends. This allows for better price forecasting and planning while simultaneously highlighting entry and exit points for assets like bitcoin, which has been known to swing thousands of dollars in minutes.

There are already analytics tools available on blockchain that are designed to manage a variety of burgeoning needs. Sether provides analytics intended for retail, marketing, and business planning by localizing their data directly on the Ethereum ledger. Others like Chainalysis focus on understanding illicit behaviors on a chain and performing risk assessment.

In a more trading-specific application, AI-powered blockchain startup Endor offers a predictive analytics engine for financial analysis. The company’s tool uses AI and natural language processing to provide an accessible and easy-to-use platform for traders. Imagine using your encrypted data to generate predictions without ever having to decrypt it.

Simply entering a plain sentence about cryptocurrencies can return an answer based on MIT’s Social Physics technology with a high degree of accuracy. On a more complex scale, tools like GraphSense propose a more technical look at bitcoin and other cryptocurrencies to build a deeper understanding of price movements.

Combining real-time knowledge with automation

Analytics are crucial towards forming a greater understanding the turbulent crypto market, but the ability to make trades in the split-second windows that become available is paramount. For retail investors, this usually means sitting by their computers or devices constantly, waiting for the right moment to execute a strategy. However, even for the most devout crypto traders, this quickly becomes an unfeasible strategy.

The best institutional traders, and even some retail investors, employ algorithmic trading tools that automate much of the heavy lifting involved in executing trades across more traditional financial markets. Algorithmic trading helps investors define broad strategies that can be codified into specific conditions to be met before executing a sale or purchase.

For cryptocurrency traders, algorithmic trading offers a real solution to the volatility problem, as they can step away from their terminals without fearing they may miss an opportunity. Companies like Tradingene, for instance, present a marketplace whereby expert traders can build algorithmic strategies and monetize them via investors that in turn deploy these algorithms. Others like Quantor are similarly focused on creating quantitative trading bots — pre-programmed trading tools that automate investing — to aid everyday traders with their investing efforts.

Empowering retail investors

More than just disparate technologies, the convergence of these two trends are instilling the confidence amongst retail investors to enter the market more assertively. It’s impossible to sit by a computer around the clock measuring every tick for multiple assets.

Instead, by using predictive analytics, traders can easily identify better strategies given their constraints and forecast windows of opportunity and exit points. Furthermore, by inputting this data into an algorithmic approach, most of the heavy lifting can be automated, enabling investors to focus their efforts towards fine-tuning strategies.

While companies are slowly working on integrating these tools to streamline the steps, these advancements are already helping retail traders play a larger role in the cryptocurrency investor pool. This democratizing effect is vital for eventually providing the foundation to support a more transparent and mature cryptocurrency trading market.

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