In this article we will discuss:
- The explosion of crypto in recent months
- The alt data sets that big finance is leveraging for real-time profits
- The future of data in the crypto market
The explosion of crypto in recent months
Over the course of 2020, and Q1 2021, the value of cryptocurrencies has exploded with Bitcoin taking the lead.
In fact, when you look at other traditional commodities such as Gold, or indexes like the S&P 500, you can see that Bitcoin has nearly tripled in this year’s rally alone.
Here are the leading factors:
Pandemic panic– As unemployment rates rolled in, uncertainty about the long term prospects of social-distancing affected industries, and concerns over fiat currency inflation – investors were hungry for commodities that could help store value.
Institutional interest– Alt-coins, but especially Bitcoin started getting major institutional interest. The most noteworthy was Tesla’s purchase of $1.5 Billion of Bitcoin, and MassMutual that invested $100 million.
Payment method– Many leading corporations have started accepting payments in crypto, including Starbucks, PayPal, and Etsy. This wide adoption in retail, drives circulation volumes, and positively influences prices.
The alt data sets that big finance is leveraging for real-time profits
Whether you are:
- A quant fund developer looking to build a crypto trading bot
- A hedge fund looking for real-time crypto movement data to help trigger trades
- Working with institutions researching, and publishing policy papers on the regulation of cryptocurrencies
Here are the data points that you should be keeping a close eye on, and incorporating in your models:
Influencers or in crypto parlance ‘Whales’, are people that crypto investors look to for inspiration in terms of which coins to invest in, as well as when to buy, and when to sell. Curating a list of crypto influencers as well as collecting:
- Actual posts
- Lists of social media accounts
- Number of followers
- Post volume
- Currency mentions
- Shared news links
Can all help you discern socially-driven asset valuation movement? This type of data can help your team track whether social metrics are indicative of bullish or bearish sentiment, informing buying/selling/holding decisions. For example, if you are collecting social mentions of Ethereum on a given ‘Whale’s’ account – on average you see some 20 daily mentions of the coin. On a given day, you may pick up on 30 mentions or a 50% spike in whale interest and realize an increase in Ethereum valuations. Once established, ‘social signals’ can help trigger buy/sell orders ahead of any major migration (be it a buy-off or sell-off).
Beyond social sentiment, you will also want to collect data regarding specific coins’ historical and current fluctuations, and metrics. This can help you, and your team create charts that enable you to easily view periodical:
- Sudden volatile swings
One can also collect other alternative datasets which correlate with these changes in valuations and create deductive models. For example, say you are collecting data on the value of Bitcoin, and you realize that the price increased to $44,200. You can simultaneously collect news data points that will lead you to many pieces about Tesla’s $1.5 billion investment in this asset class. This may lead your analysts to set a trigger in your trading models based on the purchase of alt-coins by big institutional investors or corporate entities.
Alt data sets tailored to your unique investment style
What you choose to collect can really depend on your investment style. As most investment houses know, finding your own unique strategy is what sends funds apart in any given landscape. Examples of alt data points that are ‘off the beaten track’ may include:
Mining stats– Coins based on blockchain such as Bitcoin have coins mined, and transactions recorded. Without overly complicating things, these actions leave digital footprints that can be collected as alt data. For example, the Bitcoin equivalent to Point-of-Sale data would be collecting data about new ‘blocks’ added to the blockchain public record, indicating that a transaction took place. This may also include crawling ‘nodes’ which function as public ledgers that help verify transactions in the future. Tracking transactions can help indicate trading volume, coin demand, and circulation which can influence how, and when you conduct trades.
Market cap– This is a good indication of supply and demand as it helps you keep track of the size of any given coin. This is achieved by collecting information on the current market prices of a coin and multiplying that by the number of coins in circulation.
The future of data in the crypto market
As cryptocurrencies gain popularity among both consumers, and investors there will be a lot of areas in which data collection will play a crucial role.
One example of this is the fact that certain central banks, especially in the US, may try to impose financial legislation and regulations. U.S. Treasury Secretary Janet Yellen is now leading the effort on crypto regulation – having a live alt data feed with legislative updates will be just one of the critical needs of digital currency traders in this regard.
Other examples include companies that offer:
- online analysis
- investment services
To crypto traders. These companies will need to have a live feed of crypto data powering their SaaS applications, dashboards, tools, and will be seeking out data collection networks that can deliver the goods.