The new “Gold-Rush” opportunity: Digital Asset Allocation
The global community is witnessing the rapid growth and proliferation of a new asset class: digital assets, also known as cryptocurrencies (such as Bitcoin) or digital tokens (such as Augur). These digital currencies operate independently of central banks, and use encryption techniques to regulate the generation of units of currency and to verify the transfer of funds. This asset class benefits from the security and transparency provided by the blockchain protocol, the protocol that was first introduced by Bitcoin in 2009.
The blockchain allows for the secure transfer of value across the Internet in a strictly peer-to-peer system, therefore obviating the need for intermediaries such as central banks and credit card companies. This asset class had a combined worth of $1bn in 2013.
To date, the market cap is over $105bn, and has doubled over the last year. Projections put this asset class at a combined market cap of over $1 Trillion by 2020.
Speculative investors are taking full advantage of this high growth phase, purchasing and trading these digital assets on a myriad of online exchanges.
The enthusiasm for cryptocurrencies keeps growing with each passing day as more people venture the space and latch on to the various digital assets or currencies available on the market.
As digital coins proliferate and draw interest from professional investors, though, they become harder for Wall Street trading desks to ignore. Bitcoin’s price has soared this year, from $969 to more than $5,000 last month before pulling back. Ethereum, a rival, traded as high as $400 after ending 2016 at $8. In all, nearly $150 billion of digital currencies are in circulation.
With the recent developments of this market even great incumbents like Goldman Sachs are looking forward to the opportunity of investing in this technology as the price of the cryptocurrencies market has now reached the S&P with even greater expectations of returns (picture below).
Although the opportunity is the greatest of this century yet, it is difficult for the everyday investor to wrap their heads around the high volatility of the prices.
The challenges of investing in this market are increasingly high because are moved by the emotions of the market, hence related to greater risks for non experienced traders. The Demand for digital assets is characterized as any individual or organization’s willingness and desire to acquire and/or hold on to a specific digital asset, hence prices will be what people are willing to pay. How the price changes will depend on many factors, but above all, future expectations. If the market expects improvements and increased users of cryptocurrencies, the price is likely to increase. At the same time, there are external factors that affect the price.
There is a strong correlation between Bitcoin and other cryptocurrencies because they all are traded with Bitcoin. The price can develop in the same direction or opposite to each other. However, because cryptocurrencies are part of the same market, they usually trend together.
When all the media start writing about Bitcoin, the big mass notices the cryptocurrency. This increases the buying pressure, the price increase continues, and the market becomes euphoric but also greedy.
A problem with all-time highs is that there are no support or resistance levels. Technical analysis becomes more complicated because the price is in uncharted waters. Sooner or later, when the price drops for some reason, you can expect powerful movements. The market takes the stairs up and the elevator down. One old saying is “buy the rumor, sell the news.” When the news outlets begin to talk about something, it’s a red flag on the market. Market psychology is a major part of trading, for this reason the underlying market is difficult to predict for humans, but not for automatic trading machines
Traders earn money on volatility and high risk, trading is a risky business which doesn’t fit everyone. It’s important to understand the risks related with it, especially for this unregulated market.
If we compare the stock market to the crypto market, there are many advantages with the trading of cryptocurrencies:
- Lower fees and smaller spreads — Transaction fees are significantly lower or close to zero. Besides, the price difference between buying and selling is usually less, which reduces the risk.
- Absence of institutions and algo trading — Many institutions and major players in the financial market are still outside the crypto market. There is also less robot trading and manipulation of cryptocurrencies than ordinary currencies. This leads to a fairer and easier market for trading.
- More people with little market experience — Because there are many small savers within cryptocurrencies, technical analysis works better. Trends and patterns are much easier to analyze. Individuals without experience make many mistakes on the market.
- Highest returns — ROI on a single digital asset long-only is greater than the combined of the S&P or than any other asset in traditional markets.
Cryptocurrency trading is faster, cheaper and easier but is not easy: it requires expertise, data, and time. Bitcoin trading never stops, unlike Wall Street it goes on 24/7, 365. So what can an everyday investor or trader do to increase the efficiency of his portfolio of cryptocurrencies without using the majority of its time and life? Similar to Wall Street and stock trading, Bitcoin and cryptocurrency trading are a form of income. Due to the nature of the medium, however, many Bitcoin traders do it as a side project, focusing their energy on a main job or alternate work.
But to generate passive — or active — income in these industries, you must be paying attention to the current market trends and activities. Market shifts happen so fast, you can lose a lot of money if you don’t act soon enough, or don’t have time to trade when it’s opportune. That’s exactly why automatic trading through Machine Learning technologies is the next best thing to reduce the inefficiency of the market, while increasing the total returns over arbitrage opportunities.
The answer is what we found, by using Machine Learning technologies from sorting and classifying inputs (prices, volatility etc.), to making predictions and estimating probabilities of movements and outcomes. Automatic Trading makes it possible to make money when the price varies. This is something that is becoming increasingly popular with cryptocurrencies: Bitcoin is a natural fit for automated trading. It is growing an army of professional traders using high-speed strategies, deployed by some of the biggest Wall Street players as they see Bitcoin and cryptocurrencies as a new, exciting ground.
Elpis represents an example of an “innovative” approach to this market with the newest technologies. A new business model based on the revolutionary application to investing of technologies like AI, Machine Learning, blockchain, and smart contracts.
Please visit Elpis Investments for more information regarding our company and our trading strategies.
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Andrea De Francisci
COO of Elpis Investments, The first AI Crypto-Assets Investment Fund: www.elpisinvestments.com, email@example.com