A fresh Bloomberg article is suggesting that the recent uptick in cryptocurrency market prices could be due to algorithmic trading. This comes as the cryptocurrency winter is showing signs of finally beginning to thaw.
Algorithmic trading relies on automated software to identify trading opportunities
According to this Bloomberg piece, which was published on April 3rd, algorithmic hedge funds could be an important driver behind the recent surge in Bitcoin prices.
For those unfamiliar with the concept, algorithmic trading is a computer-driven type of trading, which relies on automated software to identify trends and decide when to execute trades.
Furthermore, Bloomberg reports that around 17 different algorithmic or quantitative cryptocurrency funds have launched since last September. As such, these funds reportedly constitute a whopping 40% of all the cryptocurrency hedge funds started during this time.
However, there is some division as to how investors regard algorithmic trading. The CEO of the London-based cryptocurrency firm BCB Group, Oliver von Landsberg-Sadie, expanded on this issue.
”Some people are in the camp where algorithmic trading is a manipulative device, and others are of the view that they are a way to make markets more efficient. I am definitely of the second view,” von Landsberg-Sadie noted.
Did a massive $100 million Bitcoin order drive the recent Bitcoin price surge?
However, the effectiveness of algorithmic trading is undeniable. Further illustrating this, some of the previously mentioned algorithmic cryptocurrency funds managed gains between 3% and 10% last year – whilst the cryptocurrency market as a whole lost around 72% in value during 2018’s severe bear market.
In addition to this, Bloomberg also stated that Bitcoin’s sudden 20% surge this past Tuesday, as the Asian markets opened, could be attributed to a large automated $100 million trade made over three different exchanges.
Specifically, a massive 20,000 BTC order was said to have been issued and spread out over the exchanges Coinbase, Kraken and Bitstamp. Following this large order, algorithmic bots are then believed to have begun trading – leading prices and volumes alike to increase.
Although Bloomberg noted that some entrepreneurs, such as Wei Zhou – the CFO of Binance – are positive towards algorithmic cryptocurrency trading, the industry is far from a consensus on the issue.
Instead, some fear that algorithmic trading could pave the way for market manipulation. For example, Travis Kling – the founder of the cryptocurrency hedge fund Ikigai – talked to Bloomberg and shared fears of algorithmic traders using fake orders to confuse other traders.
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Rasmus Pihl is a writer for Toshi Times by day and an avid follower of the cryptocurrency industry by night. Rasmus holds a Bachelor’s Degree in Marketing from the Gothenburg School of Business, Economics, and Law and runs a Swedish marketing consulting firm. Moreover, when he isn’t writing for Toshi Times, traveling, working or changing the world in some other capacity, Rasmus is more than likely caught up in postgraduate studies.