Algo-Based Trading Might Have More Impact on Crypto Prices Than Expected


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According to a report published by Bloomberg on April 3, 2019, algorithmic hedge funds might be the agents that have caused the price of bitcoin to skyrocket in the past couple of days.

Algorithms May Have Caused Potential Price Jump

Bitcoin, the premier cryptocurrency which accounts for roughly 50 percent of the total market cap of the industry experienced a steep rise in price as of late.

The cryptocurrency is up almost 25 percent from its price one week ago. This positive price movement has given a much-required boost to investor’s diminishing optimism regarding cryptocurrencies at large with many of them now expecting an incoming bull run.

However, according to a Bloomberg report, the increasing popularity of algorithmic hedge funds in the crypto industry might have a lot to do with the surge in the price of cryptocurrencies.

Citing data from Crypto Fund Research, the report notes that algorithmic traders account for over 40 percent of crypto hedge funds launched since September 2018.

Further, according to Oliver von Landsberg-Sadie, the CEO of London-based crypto firm BCB Group, the volatile bitcoin price swing of more than 20 percent was “likely triggered by automated software set up to execute a $100 million trade across three exchanges.” These exchanges are Coinbase, Kraken, and Bithumb.

Interestingly, while crypto hedge funds nearly lost 72 percent of their wealth in a rather forgettable 2018, some algo-based funds report that they made monthly profits in the range of three to ten percent throughout the year.

Landsberg-Sadie said:

“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.” 

Speaking to Bloomberg in a phone interview last month, Binance CFO, Wei Zhou, stated that many of the recently launched algorithmic funds are operating in “stealth mode.”

He said:

“What we are seeing is a lot of younger, up-and-coming fund managers are trying their hand out in this industry. At least from trading volume and demand perspective, they make up a much larger proportion of the market today.”

On the surface, it might seem that algorithms are making the process of trading more transparent in the crypto industry, an unchecked increase in the number of such traders, however, can raise the risk for market manipulation.

In spoof trading, for instance, traders flood the market with fake orders to trick innocent retail investors into holding market positions as per their benefits.

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