The growth of cryptocurrency has been astounding over the past year, reaching a fever pitch as of late January 2018. Over the past year, from January 2017 to January 2018, the cryptocurrency market has grown a mind-boggling 3,300%, which is up from a market capital of $17.68 billion to over $610 billion. This growth far outstrips any investment market, however, uncontrolled growth has drawbacks for the future.
Much of this growth is due to greed – cryptocurrency’s upwards trend has been so strong that unsophisticated investors are now pouring into the space, driving up the price even further in the short term. This influx of novice investors spells tremendous uncertainty in the long term due to the fact that it’s difficult to predict emotional reactions.
Part of the uncertainty is due to cryptocurrency growth being so rapid that it outstripped the pace at which infrastructure and tools could develop alongside it. Due to the nascent nature of the space, there are a significant number of pitfalls that everyday investors can fall into when trading. These traps range from malware that can replace a crypto wallet with a fake one, vulnerabilities within exchanges, and lack of tools to support advanced trading strategies. In addition, the cryptocurrency market is still very simple in terms of financial instruments. Aside from bitcoin futures which were only recently introduced, derivative securities are otherwise nonexistent.
One method of reducing future uncertainty is through education. Ensuring that investors are driven more by quantitative data and news will lead to a more logical market. While forcing all unsophisticated investors to learn is unlikely to happen, making it easier to obtain collect and analyze data is a step forward. Many investors today are left in a state of vulnerability due to lack of knowledge and tools, finding information requires significant legwork and may not always be reliable.
The Uneven Playing Field – Knowledge
Perhaps one of the largest issues facing cryptocurrency investors is the difficulty associated with gathering knowledge and analyzing data. When compared to traditional financial markets, such as equity or debt markets, cryptocurrency has a noticeable lack of advanced analytical tools available.
For example, equity traders have a large selection of sophisticated trading software at their fingertips, such as Bloomberg Terminal or TD Ameritrade’s ThinkorSwim. These tools allow for a level of deep analysis and high-level information gathering that facilitates quick decision making and development of trading strategies. In practical terms, these tools can provide granular metrics such as MACD or RSI for analysis or use in a trading strategy or act as a platform on which algorithmic trading is built. When it comes to cryptocurrency, there are few options available and none of them allow for custom strategies or analysis.
New Tools for Cryptocurrency Investors
Some startups have emerged to tackle this issue, such as Signals and Enigma Catalyst. Both of which are looking to create crypto trading platforms which facilitate deep analysis and allow the creation of custom strategies. The prime difference between the two is that Signals is targeting investors who have no prior coding experience and is also partnering with data science developers in order to provide a level of machine learning that is more powerful than any competitor options.
Signal and Enigma Catalyst are just the beginning of a new wave of crypto tools that facilitate a deeper, more data-driven style of trading within cryptocurrency. The vast majority of investors today do very little analysis and operate primarily on a gut feeling. By providing a deeper level of understanding, these systems allow for investors to shift away from emotional and cognitive biases and instead rely entirely on data-driven approaches.
One of the important aspects of both Signals and Enigma Catalyst is sharing of trading strategies, which translates into significantly lower barriers of entry to data-driven trading. More widespread adoption of such trading strategies will ultimately lead to a greater proportion of investors moving away from emotional or cognitive biases, resulting in a more logical and predictable market.
The Future of Cryptocurrency Infrastructure
It’s undeniable that cryptocurrency has grown at an explosive rate, but there are always drawbacks to uncontrolled growth. The growth of essential tools for trading cryptocurrency is still in nascent stages and it could take years before it catches up with the utility that traditional finance tools offer. Nevertheless, the development of powerful trading strategy platforms such as Signals and Enigma mark the beginning of a more stable and well-informed investor base. Ultimately, educating traders to rely less on gut feelings and more on hard data will lead to a more stable, less volatile cryptocurrency market.