Coinfloor, a cryptocurrency exchange that operates multiple subsidiary exchanges, is joining hands with Trading Technologies International, Inc., a leading trading software provider. The organization will utilize the software company’s TT Score machine-learning technology so executives can examine and monitor suspicious activity occurring on their exchanges.
Speaking with Bitcoin Magazine, Morgan Trinkaus, product manager at Trading Technologies, explains that manipulation usually occurs in every market but that the cryptocurrency industry is particularly vulnerable as it is less mature.
“The larger percentage of inexperienced retail traders [and] the higher level of perceived anonymity and uncertainty in the regulatory landscape may make it an attractive place for bad actors to employ malicious strategies,” he comments. “If you look at the reporting of actionable matters that come from the regulators of established markets, and not just the ones that make headlines, you can see that manipulation continues to be an issue in just about every market, and there is little evidence that crypto is any different.”
The partnership marks the first viable adoption of machine-learning technology for market surveillance by a cryptocurrency trading venue. It’s also the first time TT Score is being implemented by a digital exchange. Coinfloor will implement the software into its flagship exchange and each of its subsidiaries, Coinfloor Exchange UK, Coinfloor Exchange Gibraltar and CoinfloorEX.
Trinkaus explains that machine-learning can be used to catch activity ranging from spoofing to layering to vacuuming, along with a host of other variants that disrupt trading using non-bonafide orders.
“Uniquely, [machine-learning] can adapt over time, as it is trained on the latest variants of abusive trading,” he states. “We score trading activity on a scale of 0-100 (with 100 being the activity that is most likely to draw regulatory attention), and we use these scores to create color-coded visualizations of all the trading within a given entity. These visuals allow for the quick identification of problems before any trading activity is even reviewed by the user.”
The TT Score system will be online by early August 2018, and it is designed to give professional-level traders direct (and safe) access to the global market. Customizable tools are also available to accommodate virtually any trading style, from manual point-and-click trading to low double-digit microsecond automated order entries.
Trading Technologies’ Vice President of Cryptocurrencies Michael Unetich also provided us with his commentary on the growth and security of the market. He believes that, the more manipulative behavior can be monitored and stopped, the less vulnerable cryptocurrencies will be to price swings.
“Bitcoin volatility is already significantly reduced from Q4 2017 and Q1 2018, but we do agree that the more tools that are out there to monitor behavior, the lower day-to-day volatility will be,” he affirms. “Different sets of crypto assets will show different types of volatility. For example, bitcoin may move like a slightly more volatile currency or metal, and utility and securities tokens may have volatility levels similar with small-cap stocks.”
In the end, however, Unetich believes that the only way for volatility to disappear completely is for traders to have full faith in their markets.
“For strong price appreciation to occur in crypto, people must be able to trust the marketplace,” he explains. “Once it is mature and trusted, we believe investors will consider it a legitimate asset class. Exchanges have the important job of making sure their marketplaces are fair, transparent and free of manipulation. Traders and investors alike should applaud the use of surveillance software by cryptocurrency exchanges.”