Can Crypto Incentives Improve a Trader's Market Predictions?

Marvin Dumont  |

It can be that hard.

JPMorgan estimates that 90% of the stock market is made up of high-frequency computer trading. Trading on cryptocurrency exchanges can also be very competitive. But what makes it worse is this year's bear market.

In 2018 the crypto market lost 74% of its value since the peak $830 billion market capitalization back in January. Second, artificial intelligence (AI) and algorithms are competing with human traders. Machine learning and other advanced methods are measuring in real-time signals that move crypto prices. These include social media engagement, news coverage, regulatory crackdowns, and tweets from influencers, to name a few factors. is introducing a new solution that helps investors anticipate where markets could move by rewarding digital tokens to traders who share accurate, predictive insights. Users purchase with tokens what's called a Blueprint (which contains market predictions) and, if the analysis is correct, the cryptos are transferred to the trader. Call it a success fee.

It's a different approach that incorporates human insights. With this method, top traders are rewarded for correctly anticipating where the market is headed — instead of relying on signals that deep-learning machines number-crunch.

Regulatory news actually have the greatest negative effect on crypto valuations, according to Sept. 23 report by Bank for International Settlements (BIS). The problem is that it can be hard to predict when the "sheep" hits the fan. For example, it can be hard tell if or when China shuts down a big exchange, or if or when Maduro's dysfunctional government in Venezuela bans digital coins. However, there's certainly geopolitical experts out there (who specialize in China, Venezuela and whatnot) and who can be enticed to share insights.

Traditional and cryptocurrency markets can be inefficient because of prevalent misinformation and noise that overwhelm the public conversation.

"If trade predictions come from traders who have skin in the game, who are invested in their predictions and stand by their word, a level of trust is established," said Hedge CEO David Waslen in Oct. 5 blog. "Accountability enters into the equation as trade predictions naturally become higher quality. When you have ranked traders who possess proven track records, that creates a reliable platform in which fellow traders have the best possible market-forward information."

He said the problem with many predictions is that there are hardly any consequences for being wrong. Waslen added that predictors should be motivated to get it right. Hedge is launching a token sale in mid-October.

When it comes to cryptos, regulatory actions can lead to adverse consequences on crypto prices. According to BIS, these include news related to money laundering, terrorist financing and restrictions in regulated markets. According to the organization, news coverage can also lead to strong, positive gains. Thus, a top trader who possesses strong insights on regulations can share his analyses and receive some HEDG tokens if he's proven to be accurate.

Stock price data is provided by IEX Cloud on a 15-minute delayed basis. Chart price data is provided by TradingView on a 15-minute delayed basis.

DISCLOSURE: The views expressed in this article belong solely to the author. Information contained herein should not be construed as professional or investment advice.

The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:

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