By Dr. Anna Becker
As of late-April, over the past year the value of Bitcoin (CRYPTO: BTC) has dropped more than 20% against the dollar, but there have also been times in its history when it gained nearly that much in a single day. Ethereum (CRYPTO: ETH) has been down less on the year; but it, too, can have wild swings, making up months of losses in a day or two–or losing months of gains in just a couple of days.
In such a market it is no surprise that many have taken the approach of Hold on for Dear Life–or HODL. The volatility combined with the uncertainty about what the whole crypto and blockchain world will look like in the future makes the idea of closing one’s eyes and hoping for overall growth in the long-term tempting. But that is not the right strategy; if you are going to do that, just buy ETFs and mutual funds–why take the risk of crypto?
Others are simply not getting involved; they are waiting for regulation, hoping that will calm the markets by increasing capitalization and turnover. There may be credence to that, too. But it’s not the right approach because we could be waiting for a very long time.
There is a better way to go about this, one that will allow consumers to reap the high rewards of the volatility in this high-risk asset class–or at least make the best effort to do so: The solution lies in making it available to the public the tools that help them trade well amid— and even because of— the volatility. Afterall, hedge funds and other financial institutions have for years taken advantage of algorithms and trading signals to do well in choppy markets. So rather than holding on for dear life or waiting on regulation, the investing community should be pushing for more innovation and access to trading tools to take advantage of the market now.
So how do investing algorithms work? The variety of tools emerging for public use include manual options, which allow investors to set upper and lower limits for certain coins, automatically activating buying or selling when the values change. But a more sophisticated option is the growing number of trading signals that users can subscribe to; created with AI-assisted analysis of real-time market activity, these signals guide subscribers on when to buy and sell, offering a scientific, rather than emotional or gut-based way to make decisions.
In some cases, these signals can also be automatically executed, allowing subscribers to take advantage of such intelligence in real time, rather than chasing the market. While still in its early stages, automatically executed signals promise to be the real game-changer, just as they have been for hedge funds, beginning a decade ago. In fact the volatility of the crypto market–and the rapid growth in the number of trades— makes this space especially suited for using algorithms and trading signals. They could actually have more impact here than they have had on trading equities and other assets.
There is no doubt that the market will see a growing demand for such tools; our recent survey found that 79% of retail crypto investors believe that institutions and funds do better because they have access to more advanced tools– sentiment that strongly indicates a growing interest among retail investors to have an equal edge. Another important idea to remember here is that we also found that 58% of those who invested in crypto did so mainly to reap returns. This, along with platforms like Robinhood (NASDAQ:HOOD), Betterment and others increasing their crypto services for consumers, clearly shows that consumers are increasingly building this asset into their portfolios for economic reasons– for returns– rather than for ideology. Moreover, 78% of investors we surveyed said their biggest risk was volatility–and that’s exactly what these tools seek to address.
These advanced tools are a big opportunity for wallets and exchanges. As overall trends point to a reduction in transaction and other fees, the roll out of advanced tools that significantly increase investment performance will allow platforms or other trading service-providers to charge higher premium fees, giving a boost to their business models.
While the volatility of crypto currencies can be challenging, this should not scare away potential investors, even retail consumers like you and me, from trading this asset class. These emerging publicly-available advanced and automated trading tools that are smarter than us will finally lead to the long-awaited and anticipated democratization of financial markets.
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