A recent Forbes report examines the main factors that affect profitability in the crypto sector. There are three main factors determine the profitability of a trader in the sector. According to the report, despite the crypto market experiencing huge price swings, which can be hard to predict, it is just another market. While it is still young, the same market forces that affect the legacy financial sector affect the crypto sector. These factors are:
1. Investment Bias
Biologically, we all have biases. In the fiat market, there are tools and a lot of research that helps traders understand their biases and limit their impact on the decisions. As a result, most investment firms, some of which have over a hundred years of experience, have risk management protocols in place to manage emotional bias.
Besides that, they have developed algorithms that have eliminated the human factor in trading decisions. In the crypto market, most trades are executed manually. It is because most traders only own a few thousand dollars in crypto. Additionally, most of these retail traders have no experience trading. Consequently, emotional bias plays a huge role in profitability.
2. Inadequate Information
In the fiat market, there are strict laws that govern how information is disclosed and how it travels. In most cases, information travels in seconds, and it is acted on. Numerous media sources disseminate this data to traders. The result is that fiat markets are extremely efficient. It is not the case for the crypto market. No disclosure laws govern the sector. Besides that, the information distribution systems are still in their infancy. While all information is carried instantly in the blockchain, various external factors play an important role in price discovery. In general, there is no reliable and efficient supply of information in the crypto sector.
3. A lot of Noise
Crypto trading is a 24/7 market that generates a lot of chatter. The result is that retail traders, who make up the bulk of traders in the crypto sector, have a hard time separating the noise from facts. They do not have enough time and resources to evaluate the chatter and make the correct trading decisions.
In the future, the use of algorithms and machine learning could help to improve trading in the crypto sector. There are already companies working on this issue. However, most of the work is still in its infancy. The result is that a more accurate view of the market can be generated. It could play a critical role in helping to end the huge price swings that currently plague the crypto market.
Machine Learning Crypto Trading
Cryptocurrency markets and machine learning can form the perfect duo. Machine learning relies on data to understand / project patterns. People tend to forget that the cryptocurrency markets never close. Unlike the traditional stock market that closes throughout the week, cryptocurrency trading is a 24.7 market. This opens up a lot of opportunity for machine learning and algorithms to really study the markets. There’s so much data out there that can be collected to better understand blockchain technology and digital asset markets.
Your Being Influenced By Machine Learning
Machine learning was nearly a $1.6B industry in 2017, and is projected to reach around $21B by year 2024. Cryptocurrency markets are starting to scratch the service with machine learning, but nothing compared to traditional markets. Everyday the millennial generation watches shows and movies on Netflix. Many are unaware that companies like Netflix depend heavily on machine learning. When Netflix is “recommending” you watch a specific move, it’s utilizing machine learning based on your previous actions.
A lot of Room for Growth
While there are still various factors that plague the crypto market, which is mainly dominated by retail traders, there are numerous opportunities for growth. The incorporation of algorithms and machine learning will no doubt be good for the sector as it develops. While the three factors mentioned above make it difficult for traders to make the right trading decisions, it also presents an opportunity for the tech industry to invest in the crypto sector and ensure consistency in profits.
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