Bloomberg Believes Bitcoin’s Recent Renaissance Rally Could Be Fuelled By Algorithmic Trading
As you may know, this week is seeing the crypto market finally reborn. After spending a lot of time at the $4,000 US mark, the price of Bitcoin has finally reached the $5,000 USD levels once more and crypto traders all over the world rejoiced. Now, Bloomberg reported that this recent market jump may be linked to algorithmic trading.
In case you are not familiar with it, algorithmic trading is when someone uses automated software to detect a set of trends in the market and then chooses what trades are more profitable.
This kind of program is getting more popular now. Most of the software a few years ago was pure junk, but some initiatives are using machine learning and artificial intelligence in order to devise better trading apps. 17 models were launched since September 2018, according to Bloomberg, which is very representative of this trend. Also, almost 40 crypto hedge funds are using this kind of software.
If you doubt that it can be useful to use this kind of software, you should remember that the whole crypto market has lost 72% of its value last year. Despite this, most of these hedge funds had green months with 3 to 10% of profit in them. How? By using this algorithmic trading software to their advantage, at least that it what Bloomberg believes.
According to Bloomberg, the 20% price surge that Bitcoin has seen this week has been made shortly after the Asian markets opened and it was started by a $100 million USD trade made on three major exchanges.
A 20,000 BTC order was spread between three exchanges: Kraken, Coinbase and Bitstamp. As soon as the order was put, the bots saw the trend and started trading, this made trading volume rise and prices followed.
The Future of Algorithmic Trading
Some of the people who were interviewed by Bloomberg seemed to believe that algorithmic trading was the future. The CFO of the Malta-based Binance, Wei Zhou, affirmed that this kind of trading will be the “new rock stars of the industry”. It makes sense. Crypto trading is extremely digital, so digital bots seem very compatible with this kind of world.
However, some other people were also concerned about the darkest aspects of using software like this one. Travis Kling, for instance, the founder of Ikigai, a U. S.-based crypto hedge fund, fears that these bots can be used to manipulate the market.
According to him, there is a real risk that people can use robots to fake orders and trick other traders into doing what they want. It is worth remembering that some recent reports affirmed that over 90% of all crypto trading volume is fake and is created by wash trading, so these claims seem to have some truth behind them.
Other Possible Reasons For The Price Surge
There are many other reasons that may have caused the price surge of Bitcoin, so it is hard to affirm that trading bots were the actual cause. For instance, an April Fool’s joke made by Eric Lam, a Bloomberg author, that claimed that the SEC approved the Bitcoin exchange-traded fund (ETF) could have affected the market (or not).
Some people also believe that the uncertainty about Brexit (the process of the United Kingdom leaving the European Union) may also be a cause for the price spike.
Jesse Powell, the founder of Kraken, has jokingly accused the “Doctor Doom” Nouriel Roubini to be behind the price increase on Twitter. Roubini was advising people not to invest in Bitcoin during the price surge and he joked that he was the mysterious whale trading $100 million USD worth of BTC.
I think we found our $100m mystery bull whale. He's downplaying the surge because his accumulation rampage is not over! https://t.co/wBNWQsUGtx
— Jesse Powell (@jespow) April 3, 2019