Bots to help cryptoinvestors

Five years ago Joseph Lee designed the first script trade bot to buy and sell Bitcoins. The algorithm was rather simple. The bot monitored various stock exchanges looking for price deviations. Once the terms seemed favorable, it bought Bitcoins at one platform and sold it at another. Present-day algorithms are more sophisticated. In an interview to Invest Foresight, Robert William Allen, Coin Cube startup founder, explained the advantages of using automatically collected digital portfolio and what cryptocommunity may face in the immediate future.

– How did you manage to find yourself in the crypto industry? Do you remember the moment when you knew about bitcoin?

– I first heard about Bitcoin in 2011 and, unfortunately, dismissed it without much thought. It looked like a pyramid scheme. I remember thinking, “this can’t work because digital goods are infinitely reproducible and so what’s to stop people from copying their bitcoins like they copy an mp3?” In order for something to work as money, it needs certain properties such as portability, divisibility, fungibility, durability and scarcity. Fast forward to 2013 and I started seeing more news articles about Bitcoin and so I started to pay more attention. I brought my skepticism to the table and began looking for answers to my questions. I wanted to understand why Bitcoin was still around. As I started to dig, I was impressed by the quality of thought coming from the Bitcoin community. These were some of the smartest people I’d run into on the Internet. I eventually read the Satoshi white paper and that’s when it finally clicked. Bitcoin is the first example of digital scarcity and a breakthrough in computer science and money.

– How did Coin Cube come to be? How long did it take to develop the trading algorithm?

– Once I was convinced of the potential of Bitcoin to transform the financial system, I started to think about the huge opportunity this paradigm shift represented for new business ideas. I also noticed that there were very few tools for managing a portfolio of digital assets and that this was something which I wanted to see built. I founded Coincube in 2014 and found some developers over the next few months to help with building the application. So far around $100k has been invested in Coincube.We have since been working to refine the product offering and have gone through several iterations of the trading engine and the algorithm. We are currently offering an automated index fund algorithm which is very simple but helps to automate the execution of a crypto index portfolio, which would take countless hours if done manually.

– Do you offer arbitration to users?

– Coincube’s goal is to bring useful automated trading tools to retail investors. Arbitrage is not currently offered because it requires moving funds between exchanges and this would mean that we would need API keys with withdraw access in user accounts. The security risk found in this sort of offering is too high at this time to consider such a tool. However, such algorithms are not completely out of the question in the long-term.

– Users keep their money from you or on the exchange? How do you ensure security?

– User funds are held on exchanges. We also recently added an address tracking feature so that users can also include balances from wallets which they control. Holding funds on exchanges is not without risk and we encourage our users to diversify their holdings across multiple exchanges and also to hold the majority of their funds in wallets which they control (i.e. not on exchanges).

– Cryptocurrency markets are much more volatile and harder to predict than the stock exchange. They’re also more influenced by events that trading algorithms can’t analyze, such as the announcement of a new government regulation in Beijing…

– Coincube does not offer a trading algorithm designed to predict the price movement of crypto assets. Our offering is a tool to automate holding a diversified portfolio and to rebalance this portfolio periodically. Rebalancing means that assets which have over-performed in the portfolio are sold for under-performing assets. This is popular strategy in traditional markets but we make no promises about the performance of the strategy.

– Your algorithm aims to minimize the risks of the user. And how do you treat yourself to the risks? Need to invest exactly as much as ready to lose?

– Our algorithm may help to lower investor risk because asset diversification spreads risk across multiple blockchains/ digital assets. It is still very early in the development of cryptocurrencies and crypto assets, so diversification may help but is by no means a guaranteed low-risk strategy.

– There has been an ongoing debate regarding the prices of cryptocurrencies, particularly bitcoin, where do you see prices headed over the next few months?

– In the short-term, it is possible that we could see additional downside in the crypto markets. This is simply due to the fact that markets tend toward acting in a cyclical fashion and we have just experienced a tremendous rally in crypto. For new investors looking to enter into a position in crypto, dollar-cost averaging over the course of several months to a year is a popular strategy.

– What happens to crypto when the stock market crashes?

– We have yet to see a major stock market crash (-30%) with crypto as a viable asset class where investors can turn for safety and/or diversification. I think the odds are high that a major stock market crash may result in a rally in crypto.

– What do think about “Pump and dump” schemes?

– As long as there are markets, people will try to find ways to “beat” the market. Pushing the price of an asset up in the hopes that others will pile in afterward with the intention of selling back at a higher price may work for some people some of the time. However, if you join a “pump and dump” scheme, you may also end up as the mark in the group. I run away from anyone promising short-term, guaranteed profit and I would advise others to do the same.

– Are digital assets and tokenization a long-term threat to traditional venture capital?

– While we have an obvious example of where this idea was harder to build than expected (see the DAO hack), I do think that, in the long-term, access to earlier-stage investment opportunities is going to become the norm. I’m not a fan of laws which constrain certain types of investments to “accredited” investors. Experience is the best teacher and if the first two rungs on the ladder are removed to “protect” investors, fewer people will become investors and we are all poorer for this. Thankfully, crypto means that we now live at the beginning of a new age where anyone with a computer can now issue tokens which can represent any manner of real-world assets, including stocks, bonds, and other financial instruments. Of course, this new paradigm also means that we will need new tools to separate legitimate business endeavors from scams. I’m confident the market will sort this out in the near future.