CRYPTO MARKETS VOLATILITY: TRADITIONAL WEALTH MANAGERS VS AI-BASED SYSTEMS
In a recent report, Bloomberg certified with data what was already apparent to operators and close observers: cryptocurrencies seem crossing the bridge to Main Street. The constant surge in price of Bitcoin in the last months has certainly made the headlines, bringing a larger attention to the world of crypto currencies and the nascent crypto equities market.
The ride of Bitcoin has captured the attention of even the more traditional investors, that are flooding with requests the traditional wealth managers and investing companies. As Bloomberg put it, they “are fielding calls and emails from clients worried they’re missing out on something big by not owning Bitcoin. While most advisers don’t recommend buying such a volatile asset with no intrinsic value, they do have tips for clients who have taken the plunge, or are dead set on doing so.”
Summarised in a couple of sentences it is possible to detect some of the main issues that traditional wealth management companies are facing. And one of the main concerns for the traditional investors as well: the volatility of cryptocurrencies markets.
Some useful questions arise from reading Bloomberg’s analysis: how are this traditional managers dealing with the new crypto markets at large? Are they able to manage and fulfil investors’ demands? Are traditional wealth managers and investing companies with their traditional approaches and strategies capable of dealing effectively with volatility?
Many indicators, starting from the ones described by the report, seems to point towards a negative answer: traditional investment management companies are struggling to grapple with new financial instruments and keep on trying to succeed with traditional strategies that seem outdated and no longer reliable.
Take the approach of “Kevin Grimes, president of Westborough, Massachusetts-based Grimes & Co.” quoted in Bloomberg’s piece as an example: “he sees buying bitcoin as a Vegas-style gamble.” What does this kind of approach to cryptocurrencies say?
Well, generalising it’s not always the best way to tackle a multi-layered issue, nor it can always help in finding all the answers, but: if this is not the only attitude or approach that emerges, it certainly contains an underlying layer, a sort of revealing synecdoche that is helpful in detecting a pattern. It describes a common feature of the largest fabric traditional investing is made of.
In fact, this approach reveals a few common traits: the lack of a deep, hands-on understanding of cryptocurrencies and crypto investing in general. And a general and growing phenomenon of what we can call here, for the purposes of clarifying our point (and borrowing the expression from very different contexts) a “technological divide.” Between innovative companies and startups that are shaping the nascent cryptocurrencies’ market and the new digital investing market, and those traditional actors that still rely on the “good old” methods (or at least are pretending to be doing so).
This “divide” originates from both the vision and the means used to realise it. Simply put: an innovative approach is moving toward a massive deployment of technologies that are becoming constantly more efficient as Artificial Intelligence, Machine Learning, Deep Learning and algorithmic systems. These systems already proved able not only to make use of the unprecedented data availability in terms of analysis, but also in giving the investors efficient and successful investment strategies that are capable of bypassing issues like volatility.
Traditional wealth managers are dealing with the seemingly systemic volatility of the crypto markets by utilising the “usual suspect” strategies: like the traditional and passive “Buy and Hold” strategy, with some minor variations. The likelihood of further deep corrections is high and there is the need to be protected when that happens.
This is why at Elpis we implemented our strategy to decrease the volatility and control the risk. In building our cryptocurrencies Back Test trading model we used daily data of different time series (Dollar Index, Gold), so we didn’t use exclusively endogenous data: the trading activity consisted in buying and closing these long positions, short positions were not opened. As soon as a long position was open, real-time protection levels were activated: if the price drops below those levels, the position is closed immediately. Using protective real time stops embedded in the algorithm, helps to quantify the amount of risk that is in line with both the profile and the expectations of our clients: that level could change as a function of money management models.
The future for us is in what we found: using Machine Learning technologies from sorting and classifying inputs (prices and volatility among them), to making predictions and estimating probabilities of movements and outcomes: automatic trading makes it possible to make money when the price varies, limiting the impact of volatility and reducing risk efficiently.
What we described is something that is becoming increasingly popular with cryptocurrencies: Bitcoin for example is a natural fit for automated trading and it is growing an army of professional traders that are using high-speed strategies. Also some of the old giants are trying to follow the trend by deploying, in some capacities, technology-based systems, but very often without clearly and transparently telling the investors, as they are almost forced by growing investors’ new demands in terms of cryptocurrencies.
Another traditional and very much trusted media outlet like the Financial Times in a recent article wrote: “At the same time, enthusiasts, semi-institutional names and even some hedge funds have sought to invest in cryptocurrency projects. Many have embraced so-called initial coin offerings, a fundraising mechanism. “We think a large part of the potential value of Ethereum is its role as the money supply for ICO,” said Bank of America Merrill Lynch in a research note this month.”
It feels like the old giants are trying hard to keep up with a world that is threatening to flip the tables at them: trying to put a feet in the door, in the attempt of turning or controlling the current shift that they know is potentially disruptive for the whole traditional segment of the industry.
Are these indicators enough to say that the traditional wealth management will undergo a systemic disruptive process? Maybe it is too early, but certainly these are more than just signs for traditional investing: volatility, as we saw, represents an important testing ground to see the differences between a technology-based approach and a traditional one: automated systems like Elpis’ one are already proving their proficiency in reducing risk and the impact of what was till now one of the main issues and concerns for the investors, volatility. Traditional wealth management on the other end, are proving time and time again to be less effective.
As an innovative FinTech startup at Elpis we have created an AI-based investment system that provides the investors with AI-based strategies that proved their efficiency in reducing risk and the impact of volatility. Strategies that are already available on traditional assets (futures) and will be then operative both in the stock and in the crypto markets, thanks to the Crypto Equity ICO Fundraising that we are currently running.
What is at stake here is the investors’ money and wealth, but also the future of investing. Only adequate and efficient investing systems can overcome the challenges we are facing, challenges that have an unprecedented level of complexity. Artificial Intelligence-based systems like Elpis’ one have already proven to be effective in reducing the volatility impact. So, why entrusting your wealth management to somebody that might consider investing in the new financial and cryptocurrencies markets as a “Vegas-style gamble”?
If you want to join the investing revolution, check our Crypto-equity ICO Fundraising at www.elpisinvestments.com, to know more about Elpis ICO and the discounted pre-sale that has started on November 1, 2017.
Giuseppe Solinas
Chief Editor of Elpis Investments, The first AI Crypto-Assets Investment Fund: www.elpisinvestments.com, info@elpisinvestments.com
Originally published at medium.com on December 7, 2017.
