December 13, 2018

The rise of Ethereum trading bots

December 13, 2018
|
3 min

If you’re familiar with the world of crypto, you’ve probably heard of Ethereum. Until recently, ether — the cryptocurrency generated by the Ethereum Platform — was second only to Bitcoin, though it has since been overtaken by Ripple.

Ethereum is born

Vitalik Buterin, the Russian-Canadian founder of Ethereum, still had yet to reach legal adulthood when he started writing about and trading Bitcoin. He became a passionate believer in blockchain almost immediately, attending Bitcoin conferences and meetups across North America.


But Buterin started to view Bitcoin technology as limited and set out to create a more adaptable platform. In November 2013, at 19 years old, he published the Ethereum White Paper, which laid out his vision for an open-source, distributed computing platform. And though he expected critics to tear it to shreds, it was very well received.


After some debate, the founding team decided to crowdfund using an Initial Coin Offering, selling ether to investors in exchange for fiat or other preexisting cryptocurrencies. The team sold 13 percent of the circulating supply, raising 31,500 Bitcoins or roughly $18.4 million USD.


Ethereum’s technology centers around smart contract functionality, which allows it to enforce conditional agreements without third-party oversight. Corporations find this feature attractive because it allows them to cut out the middleman.


Overall, the crypto market has taken quite the dive since this time last year. And ether certainly hasn’t been immune to the bearish market: the coin is down more than 90 percent since its all-time high in January 2018. Despite this, Ethereum adherents believe in Ethereum — their faith is nearly unshakable. Not to mention their investment in the projects they’ve built on the Ethereum blockchain.

Enter the Ethereum bots


With a rise in ether’s popularity comes a rise in Ethereum trading bots, which trade ether and other cryptocurrencies based on preprogrammed, fixed strategies. To crypto traders, these bots sound like a great deal on the surface - simply choose a bot with a trusted strategy and let it make money for you. For example, bots that use arbitrage make gains on the difference in prices across exchanges.


But Ethereum trading bots aren’t all sunshine and roses. Firstly, they can only react to technical indicators, leaving out fundamental indicators altogether. More importantly, though, many often follow the same strategy, which can drastically influence the market.


For instance, several bots might be programmed to sell off all their ether the moment the currency shows even a slight rise, or buy it when the price lowers. The drastic fluctuations in supply and demand induced by the sheer quantity of these bots can be harmful to the crypto market as a whole. And because of the volatility of cryptocurrencies, these fluctuations can create a domino effect, causing cryptos to rapidly change price and even crash. This has been especially true for ether.


Beyond these issues, performance reviews of Ethereum trading bots are few and far between, and there’s a serious lack of analytical data asserting their advantage. Chalk it up to the newness of crypto, the fact that it’s mostly traded by amateurs, or anecdotal evidence, but all this seems to suggest that the bots either don’t outperform the market or lose money altogether. And the phenomenon of selling bots itself begs the question - if their strategies are so good, why don’t the people who come up with them keep them to themselves so they can make all the big bucks, rather than selling them to other people?


Automation’s silver lining


But just because a hoard of Ethereum trading bots using the same strategy can lose unsuspecting traders money doesn’t mean automated trading is bad altogether. That’s where Capitalise comes in.


Because Capitalise allows traders to create their own unique strategies, they aren’t as susceptible to the pitfalls of a domino effect. Traders can use the platform to take fundamental factors into consideration in addition to the usual technical indicators. Plus, the diversity of strategies Capitalise users introduce to the market keeps it, well, diversified, and therefore healthier. People get to implement their own, unique plans and the market becomes more robust. Now that’s a win-win.



Entry strategy example

Exit strategy example

*Please note that all screenshots and examples are only shown for the purpose of a technical demonstration and should not in any way be construed as recommending any type of trading strategy and they do not constitute any form of advice. Please click here for further explanation


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