New Opportunities for Investors and Traders

Algorithmic Trading Bots are The New Assets Class

An asset class is a group of financial instruments that have similar financial characteristics and behave similar in the marketplace. Most commonly known asset classes are:

  • Stocks (also called equities)
  • Fixed Income (bonds)
  • Foreign Currencies (a.k.a. FX)
  • Real Estate
  • Infrastructure (transportation, energy generation)
  • Commodities (oil, gold etc.)

Returns and risks in each asset class differ from each other and reflect fundamentals of each asset class. Typically, each asset class will have different levels of sensitivity: to the economy as a whole, to interest rate environments, to the competition in the marketplace, and to various forms of regulation. Best portfolios represent a mix of multiple uncorrelated asset classes. Mixing multiple asset classes within a portfolio reduces long term risk and offers the best long term returns.

Algorithmic trading on cryptocurrency markets represents a new asset class with novel and unique characteristics. Returns produced by algorithms:

  • are nor related to the economy as a whole — the digital currency is global
  • are not sensitive to interest rate environment of any country
  • are not exposed to any competition forces
  • are not subject to any regulation

In fact, the returns and volatility of bot-driven cryptocurrency trading is uncorrelated even with the underlying crypto currency itself! The only thing the instruments in this new and unique asset class are sensitive to is algo-bot parameters, which every investor can specify to match their risk/reward profile.

Investors are always looking for new asset classes to enhance their portfolios to improve performance and reduce risk. New asset classes that are being invented, sometimes represent massive risks for investors due to complexity and the lack of transparency. Collateralized Debt Obligations (CDOs) and Credit Default Swaps (CDSs) led to a global financial crisis in 2007/2008 for those very reasons.

Cryptocurrencies in general and financial instruments offered by Crypto Capital AI in particular are completely transparent and would be a great addition to any portfolio.

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