Are managed funds needed to bring crypto to the masses?
Cryptocurrency's learning curve has turned into a dividing barrier, as has investment technology.
Cryptocurrency has always been at odds with its own backbone. The decentralised technology that markets itself as a way of being your own bank is still largely dependent on centralised entities like exchanges, fund managers and other intermediaries.
The irony has been a frequent point of contention, and some figures like the Binance exchange CEO have suggested that centralisation is a dirty job, but someone's got to do it.
The technically challenging nature of cryptocurrency is such that being your own bank is still frankly imprudent, and getting the benefits of exposure to cryptocurrency as an asset class might still be best done with the help of the experts. It's telling that crypto custodial services are in high demand, and security firms have been fielding requests from customers that bought crypto and now need a safe place to put it.
Gary Ng, founder of Surge Investments, points out that the steep cryptocurrency learning curve is a divisive element in itself that inevitably leaves most people on the outside looking in as well as viewing cryptocurrency as a risky, volatile, bubbly and scam-ridden Wild West that's best ignored.
And they're absolutely spot on – except perhaps for the "best ignored" part.
"Buying, holding, and selling crypto is difficult for even the most tech savvy person," Ng said. "Then you add the media attention that it receives and tabloid stories of intense fluctuations and tech bubble fear mongering. On the surface, for the uninitiated, cryptocurrency doesn’t look like a good investment at all. We want to change this perception and open up the possibilities of the new crypto arena."
At the same time, cryptocurrency is still overwhelmingly considered a speculative investment in an asset, rather than a purchase of a useful item. It might have been inevitable that wealth managers would step in as custodians.
Ng isn't satisfied with the traditional options though, and sees cryptocurrency as a way to help average mom-and-pop speculators beat the market.
"The world now has a new investment sector in addition to property and shares. To date, crypto has been the playground of the few and I hope to make it available and accessible to all," he said. "You see a lot of concerning behaviour in the traditional wealth management circles. Most top tier funds which consistently out-perform the market are accessible only to sophisticated investors. At Surge, we are focused on making access to crypto investment feasible for all types of investors including first time investors, experienced crypto investors, mum and dad investors and high net worth investors. In fact, most Surge investors are in their 30s, 40s, 50s and 60s."
To that end, Surge has developed its own proprietary machine learning trading system. According to the Surge roadmap, its trading bot has managed to achieve a 99.7% profitable trade rate, while the prototype AI can make correct predictions about two-thirds of the time. The goal for Q3 2018 is to improve the bot until it can return 0.5% per day returns.
"We help people to invest in crypto and we manage the process for them to assist them to benefit from the investment," Ng said. "I believe Crypto is the ‘go to’ form of investment and I see our role in expanding this and making it a mainstream option for all savvy investors."
Nothing in this article should be taken as an endorsement of Surge Investment. It is strictly intended to be a commentary on the dichotomy of de/centralisation, the barriers to adoption in cryptocurrency and the relative inaccessibility of top tier wealth management results for everyday speculators.
In fact, it's worth noting that Surge's goal of 0.5% returns per day with the bot is similar to the "guaranteed returns" red flag the SEC has highlighted. Also, similar projects that "handpick ICOs" and offer cryptocurrency arbitrage services have later gone on to exit scam as have people claiming to be expert cryptocurrency investment managers. Plus the laws of compound interest, and physics, mean returns of 0.5% per day in perpetuity are impossible, so it will be interesting to see what that actually works out to for the end user.
That's not to unfairly malign the project either. Robo advice is a thing and it works similarly to what Surge is going for, using carefully tested algorithms and machine learning systems with the intention of producing market-beating results. Large investment firms and wealth management firms also develop and use this kind of technology, except they usually keep it to themselves in order to keep effectively beating the market and the competition. An accessible and high performing managed trading bot would be an interesting addition to the marketplace.
Disclosure: At the time of writing, the author holds ETH, IOTA, ICX, VET, XLM, BTC and ADA.