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ICO market: A new era of Trading and Investing? Powered by blockchain and augmented by AI

 

ICO market

 

The past couple of years has been a rollercoaster ride for everyone involved in the cryptocurrencies and blockchain technology market space. Bitcoin witnessed its meteoric rise to $20,000 in 2017 and its dramatic downfall to $3400 in 2019. Initial Coin Offerings became insanely popular worldwide as the preferred fundraising tool by entrepreneurs and just as swiftly gained notoriety for a multitude of scams. As a consequence, regulatory authorities like the SEC started cracking down on ICOs and classified them as an unregulated security. And in the wake of this ‘crypto winter’, regulatory compliant security tokens are looking to replace ICOs.

It’s difficult to predict where the marketspace is heading with a multitude of factors to consider but without a doubt one of the key developments in the space is how users are interacting with new-age crypto and blockchain technology using traditional fiat currencies.



Blockchain to revolutionize investment and trading?

Blockchain technology is already making waves in scores of industry sectors from financial services to healthcare.And trading and investing is no exception as the age-old sector has been plagued with inefficiencies and overcrowded with middlemen. The inherently decentralized nature of blockchain technology, could in a broad perspective, deliver the benefits of security and transparency. In light of this, the following are some the specific ways blockchain technology could impact Trading and investing sector.

 

  • Direct peer-to-peer transactions- Currently all transactions between a buyer and a seller is facilitated by a trusted intermediary. Blockchain can enable direct P2P transactions that are secure and transparent while at the same time bring down costs.
  • Near instantaneous settlements- Currently, the trading ecosystem is complex and cumbersome. Post-trade settlements usually take upwards of three days to process, this is largely due to the large number of intermediaries involved. Blockchain could help bring this time down from days to minutes or even seconds.
  • Borderless 24/7 trade- after-hours trading woes may become a thing of the past as blockchain creates a conducive environment for seamless 24/7 global trade.
  • Tokenized trade of assets- Asset classes like real estate, artworks among other high-value buy low liquidity assets can be tokenized and sold. Tokenization can bring in much-needed liquidity into these asset classes.

 

The advent of crypto created a new trading avenue

The first cryptocurrency-Bitcoin was created nearly a decade ago by an anonymous entity known as Satoshi Nakamoto. Fast-forward a decade and there are over 2000 alternate coins (Alt-coins) currently in circulation. As cryptocurrencies swiftly gained popularity, the need for a convenient and scalable way for users to buy and sell crypto also increased. A crypto exchange facilitates the buying and selling of crypto, exchanging one crypto for another and exchanging fiat currency into crypto. There are several exchanges which popped up over the years, offering users various functions and options. As of writing this article, these are the top ten exchanges by trading volume(24h)- According to data compiled by 
InWara

 

  • Binance- $1390 million
  • Okex- $1142 million
  • Huobi- $913million
  • ZB.com- $484million
  • Bitfinex- $447million
  • Upbit- $366 million
  • HitBTC- $276 million
  • Bibox- $189 million
  • BCEX- $187 million
  • LBank- $170 million


To be precise, these are the top ten centralized exchanges, by trading volume. Centralized exchanges work similar to how a traditional stock exchange would work, the key difference being users trade cryptocurrency pairs instead of stocks or assets. These changes act as a trusted intermediary between buyers and sellers and facilitate transactions. Centralized exchanges are important because they help users seamlessly enter crypto space without running into many hurdles. But there is another kind of crypto exchange that can enable direct P2P transactions without the need for a trusted intermediary.


Are decentralized exchanges the future?

Decentralized exchanges (DEX) are peer-to-peer crypto trading platforms. It can eliminate the need for a trusted intermediary like Binance and allow traders to make transactions directly. DEX’s manages to bring these benefits to their platform by leveraging blockchain technology. There are a whole host of potential benefits to a DEX, here are some of the key points-

  • DEX are more secure in comparison to centralized exchanges (CEX), this is because hackers don’t have a single entry point like in centralized exchanges. The information stored on a DEX is over an entire network and this distributed nature of blockchain offers more protection. On top of this, all transactions on a DEX are encrypted and anonymous.
  • A trusted intermediary to facilitate the transaction is not needed, as blockchain technology enables direct P2P transactions.
  • Unlike in centralized exchanges, DEX’s wouldn’t suffer server downtimes or similar infrastructure related problems.
  • Decentralized exchanges are maintained and developed completely by its users. Implying foreign authorities like governments cannot shutdown the network. Enabling users complete autonomy over the network, the same can’t be said for CEX’s.


In spite of having a technical edge over centralized exchanges, decentralized exchanges are less popular among users. The reasons for this being decentralized exchanges only trade in cryptocurrency and do not offer fiat-to-crypto exchanges, this creates difficulty for new users to transition to their network. DEX’s also suffer from liquidity and trading volume issues, which drastically affect the efficiency of the network.

Despite these downsides and technical limitations, Trading and investing sector is leading the crypto space in terms of M&A deals. Why do M&A deals matter? Because it usually indicates market consolidation.

 

 

Top five sectors in the crypto space, in terms of M&A deals

ICO market, trading, investing, ICO, STO

source

The M&A activity in the Trading and Investing sector is incredibly the highest across the crypto space with 40 deals observed to date, which is akin to ~14% of the total M&A activity in the space. Surprisingly the Financial services sector, which leads the market in terms of number of ICOs (579) and in terms of funds raised ($2.6 billion raised to date), came second in terms of M&A activity at 31 deals observed till date.

Increased M&A activity in any nascent industry sector usually heralds the sector is maturing and consolidating. This could bring sufficient stability and decreased volatility to the sector. Despite these significant developments, the foundation block that could leapfrog the trading ecosystem into the future is likely the integration with artificial intelligence systems.

 


AI-powered trading platforms

Artificial intelligence enables computer programs to learn from experience. AI systems are best used when there is an inordinate amount of data available from which a program a can learn and make decisions in the future that help get desired outcomes. AI and blockchain are similar because both technologies are disrupting age-old industries on a global scale but completely different technologically. Unsurprisingly, this meant AI systems have been integrated into Trading and investing sector as well.

A good example to demonstrate this use-case would be that of Hong Kong-based Aidyia. According to a report by Wired magazine, Aidiya is a hedge fund that facilitates all stock trades using AI systems, without any human intervention.

 

The need for an AI-powered crypto trading platform

The need for an AI-powered crypto trading system is two-fold, and it could help propel the sector into a new era.


Firstly, it helps eliminate human errors in trading. Contrary to popular belief the human brain is not naturally exemplary at decision-making. When presented with an inordinate amount of choices, we often make critical errors misdirected by our biases and emotions. An AI-powered trading platform could help traders make the right decisions and prevent them from making the wrong ones.

Secondly, AI systems can help detect fraudulent activity in the space and hence help create a conducive environment for the market to stabilize and mature. Consider RoninAI, a cryptocurrency trading tool powered by AI. The AI system was accurately tracked unusual activity in Bitcoin’s social sentiment data, according to a blog post in hackernoon. According to the blog post, this irregularity noticed is clearly indicative of attempts to manipulate the value of Bitcoin to reach higher levels.

By removing the human bias from the decision-making process, an AI-powered crypto exchange could potentially revolutionize the crypto space. Even newbie traders in the space could make the right decisions with such a tool. This could potentially weed out the numerous bad actors prevalent in the space, and help bring stability to the market.