by Robby Black - December 6, 2018

How the Wisdom of Crowds Can Influence Crypto Trading

The cryptocurrency market often reflects the psyche of its investors. News and speculation around regulation, adoption, and technological developments all play into investor sentiment. It’s a common goal among traders to use market-sentiment to optimize entry and exit points in their trades. There are a number of questions every trader must ask themselves before making a trade based on market sentiment.

Historically, how have similar events affected price and trading volume?

The idea here is fairly simple: we compare past events that are similar to current or upcoming events. By correlating these events, we can make more qualified calls on future price movements. Many coins have been found to have their prices positively shaped by key events. These include exchange listings, as well project-timeline related news like mainnet announcements or product launches.

Speculation around these events will usually positively impact price. But that doesn’t mean everyone can profit from this opportunity. Individuals who can react the fastest to the news are in the best position. Put differently, an individual who can quickly interpret and correlate these past events to current ones is better equipped to confidently make calls before the rest of the crowd.

What is the scale and pervasiveness of the news?

The volume calls correlated to a specific piece of news is strongly tied to how widespread that news is. There are various ways to measure this with varying degrees of accuracy. A simple way to start this analytical process is to evaluate how important the news is, and to estimate the size of the reaction.

For instance if an announcement is made on a obscure blog, and that news does not propagate to larger crypto-news platforms for days it may be not a strong enough signal to trigger ample buying or selling volume. On the contrary, if all the major crypto news publications cover a particular story it might be a strong trading. However, timing is critical

Put differently, it’s very hard to make money on a 0.1% price movement — even if you are certain the change will happen. As a general rule more widespread a particular story is, the larger the price movement. For this to happen one must be cognizant of how widespread a particular piece of new is distributed. Some heuristics that one can use is the monthly page-views that the source of news has, another good metric to use is the Alexa rank of the news site. However, it’s important to keep in mind that small announcements may start off in more obscure places before propagating to major crypto-news outlets.

What macroeconomic factors may be behind investor sentiment in the crypto market?

Today, we live in a global economy where capital flows between countries and markets. For example, when bond yields are low, institutional investors tend to pull money from the bond market and pour that capital into the stock market.

The same is true in the crypto economy. The investors in cryptocurrencies have the option of investing in other asset classes, and want to make the right decision on a risk-adjusted basis. The perception of popular coins — like Bitcoin, Ethereum, Litecoin, and more — will be based on the expected returns, volatility, regulations, and growth potential of crypto at the time.

As soon as other markets start to perform poorly, we can anticipate people to look more carefully at the cryptocurrency market. Additionally, in recent history there has been a strong correlation with crypto adoption and civil unrest in certain nations. Overall, crypto is not isolated from the rest of the global economy.

What channel is the insight coming from? Who does this news benefit?

Unfortunately some some news outlets use their influence to sway the crowd towards a financially motivated agenda. Major news sources have been accused of using their reach to execute pump and dump schemes that leave many investors holding bags of crypto after prices plummet. This being said it’s always important to be judicious in deciding whether a particular puts out news that seems very agenda driven.

It’s important to research and fully understand the relationships of a news outlet. In the past few years social media has been a source of news and financial insight for many. Many turn to social media to get secondary opinions, because they feel that individual retail investors may be less biased. This might not always be the case, individuals may irrationally defend their investment decisions. They may also develop natural biases towards the specific assets that they hold.

What are some other methods you can qualify this news?

Online discussion forums can be a good source of insight because they provide the perspectives from a variety of different sources. This is especially true for platforms that have a democratic process for curating data.

Platforms like Reddit allow open discussion about a variety of topics, additionally they crowdsource moderation.Reputable blockchain communities seem to have a naturally occuring Delphi method since many individuals become experts through being long term community participants.

Newer blockchain based platforms are also being developed. With blockchain it’s possible to create insight and forecasting systems that are powered by individuals

Hilo.io wanted to equip all users with access to the opinions of experts. Blockchain technology allows smart contracts to programatically incentivize influencers for giving valuable advice. By aggregating qualified individuals with experience Hilo.io may be positioned to be a valuable resource for getting accurate insights into the cryptomarket.

Hilo is an inclusive crypto-community that synthesizes information, news, public opinion, and supports people in learning about the future of money. Hilo is a platform for beginners, experts, and influencers to share resources and information.

For more information about Hilo.io, visit https://www.hilo.io/.

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