DISRUPTIVE TRENDS IN FINANCE
Enigma is a start-up run by MIT graduates and their current project is an online financial platform called Catalyst. According to the platform’s whitepaper, “Algorithmic trading and machine learning are proving to be disruptive trends in investment management.”
Bitcoin and cryptocurrency have a large barrier of entry for those looking to invest the smart way. Many current, non-traditional investors got in as early Bitcoin adopters. These cryptocurrency enthusiasts have a wealth of knowledge and experience that gives them a familiarity with the market as well. Algorithmic trading and machine learning are yet another facet of what drives the current cryptocurrency ecosystem but are currently only utilized by a select few in this field rather than in a structured fund managed way.
The technical knowledge required for successful high-frequency trading in volatile markets is a hurdle when it comes to investment and trading. There is also very little existing data and information consolidation to trade on, never mind utilize, to drive advanced techniques using algorithmic and machine learning in gaining a trading advantage.
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AUTOMATED FOR THE PEOPLE
Data-driven automated processes generally excel over human operators in terms of speed and, given the right datasets, potentially results. Site API access means that investors are able to execute trades in a much more streamlined way, which is particularly advantageous when an exchange may be suffering from high traffic loads. Such occurrences are common on existing cryptocurrency trading platforms, especially when interest approaches fever pitch causing site outages created by demand surges.
Automated trading is not new, it is used on traditional exchanges outside of cryptocurrency where it is already proving to be a disruptive technology. As the Catalyst whitepaper says, it is a disruptive trend for what has traditionally been a human-driven system.
For those wanting to make low maintenance investments that leverage the power of automated bots it is an attractive option. The average user’s reality, however, can be quite different. Most trading bots, if successful, are likely to be based on proprietary technology and unavailable for purchase.
There are open-source versions available online but they are quite simplistic, require a modicum of programming skills and most definitely a degree of algorithmic fine tuning to get the best results from them. Mistakes in the programming can also be costly. A seemingly low maintenance solution soon starts to look less attractive, unless of course, someone is already managing that fund for you to invest in.
BUILDING A BETTER FINANCIAL ECOSYSTEM
Enigma co-founder and CEO Guy Zyskind explains the current interest in Bitcoin and cryptocurrency in general:
A lot of people are starting to look into it, and invest in it, but it’s still very much kind of like the Wild West.
Zyskind is interested in creating an online ecosystem where users can not only become cryptocurrency traders but can also find and potentially become fund managers. Fund managers will be ranked in terms of their performances on leaderboards, enabling others to follow their lead. Catalyst comes in as a platform for people to leverage the kind of data that drives automated trades. This data, in turn, could be used by a fund manager to drive a successful Bitcoin fund for others to invest in.
Fast Company’s Steven Melendez writes:
In Catalyst, Enigma plans to make various datasets available for use in automated trading decisions, from historic price information to analyses of the overall sentiment of news stories and social media posts about cryptocurrencies. The company plans to also invite users to create their own datasets and make them available—perhaps for a fee—to those setting up funds and looking for mathematical indicators of how and when to trade.
The Catalyst Whitepaper contains the following more direct information of the datasets:
“Since the ecosystem surrounding crypto-markets is still in its early days, relevant data sources are scarce and fragmented,” write the Enigma founders in the white paper. “We plan to change the landscape, bringing it to the level of more mature financial markets.”
This kind of development hints that Bitcoin may not need to secure the Winklevoss ETF with regulatory bodies and that it could again potentially enable itself outside traditional finance regulation.
Images courtesy of MIT, Shutterstock
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