“Man lives like a robot: mechanically efficient, but with no awareness”.
🤖 Today we talk about creating and using crypto bots. Potential of making you:
Not any more aware (try meditation for that one)
As well as the hottest news. Look out for the $TITAN section and our special podcast release in particular.
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⚡️ BTC & The Federal Reserve
Once again, we have seen BTC approach but fail to hold above the $39k to $40k level. Choppy ranges continue to convey indecision between buyers and sellers. It’s possible that some of the 24 hour downwards price action is attributable to the Federal Reserve meeting late yesterday afternoon:
Fed officials raised their inflation expectations and moved the year for interest rates to rise from 2024 to 2023. This can be interpreted as a sign that the economy is recovering faster than expected. And as it recovers, interest rate hikes will be necessary to curb excess inflation.
According to some analysts, prices for bitcoin (seen by some traders as a hedge against inflation) tend to drop if monetary policy gets tightened. And so, news of policy getting tightened sooner than expected may have been perceived negatively amongst crypto investors.
🤖 No Ifs, Ands or Bots
In Part 1 of this series, we reviewed the concept of crypto arbitrage. In this article, however, we introduce the concept of arbitrage bots, explain how to create them, evaluate some, and review advantages and disadvantages to integrating bots into your trading.
🔷 What is an Arbitrage Bot
Without a bot, you have to sit in front of your computer monitoring the market for a buy or sell signal based on your trading strategy. When you’re removed from your computer, however, you are unable to profit. Creating and utilising an arbitrage bot scales this process by leveraging technology as opposed to human capital to monitor the market and provide buy or sell signals for you.
🔷 How To Create an Arbitrage Bot
1️⃣ Download from open source. If you have little to no technical knowledge or experience with computer programming, the cheapest and simplest way to create a bot is to find an open source bot online to download and install. The downside is that you’ll be unable to customise the bot to your trading strategy or rectify any security issues, you’d need a software developer to do this for you. For example, if the bot you download signals a buy everytime RSI crosses below 30, but data from your trading suggests that a better buy signal is when RSI crosses below 20, you won’t be able to program this in without a technical partner.
2️⃣ Build it from scratch. If you have technical experience, or are willing to hire a software developer, your best bet is to build your own crypto trading bot. This will enable you to fully customise your bot to fit your trading needs and continue modifying it as you gather more trading data and test new strategies. Most basic trading bots can be programmed in just a few weeks. More sophisticated bots that can work with multiple data sets simultaneously, prevent security flaws, and trade on multiple exchanges, however, will likely take more time. Most bots are programmed in C++ and Python.
🔷 Popular Crypto Arbitrage Bots
Here are a few trading bots you can look into if you’d like to get more involved. We are NOT sponsored nor being financially compensated for anything mentioned below. Do your own research.
BlackBird. A fully open source and freely downloadable bot. Setting up Blackbird, however, does require technical knowledge in C++.
CryptoHopper. A premium, paid arbitrage bot that allows you to gather data and backtest strategies and set up market making opportunities to take advantage of more advanced arbitrage.
Zenbot. Another open source trading bot that is helpful for people who would rather interface with the command line rather than Python or C++.
🔷 Advantages of Arbitrage Bots
✅ 24/7 Monitoring. As we mentioned before, bots are awake even when you’re not.
✅ Affordable and Fast. Basic bots are relatively inexpensive and easy and quick to set up even with little technical knowledge.
✅ Unemotional. As traders we often fall prey to emotions like fear and greed. A crypto bot has no emotion and will execute a buy or sell strictly based on previous data.
🔷 Disadvantages of Arbitrage Bots
❌ Strategies Can Change. Bots execute trades based on an initial algorithm. This algorithm will not change even if a strategy stops working: a bot’s job is NOT to trade profitably but rather to execute a set of actions per a list of predetermined functions. If your strategy stops working, you need to amend or dispose of the bot.
❌ No Discretion. Given that bots are unemotional, this mimics the process of a systematic trader. If your trading style is more discretionary, it may take more backtesting and experience to see which bot is right for you.
❌ Scams. There are, of course, bots that can make your trading more profitable. However in the crypto industry it’s important to be able to filter out true bots and bots from scam artists.
🔷 Our Recommendation
Backtest Data. Make sure that you have backtested data available for a considerable amount of time before relying on it. Just a few months of data is not enough.
Consider Context. Furthermore, make sure that the bot you are using works in the context of the market conditions you are trading. One bot’s strategy, for example, may work well in trending markets but stop working during periods of consolidation.
Assess Fees. You should also consider how much you’re paying for the bot, including the initial fee, any subscription services, and software developer fees to customise your bot and upgrade security if need be. We’re not saying it is unwise to spend money on improving your trading, but understanding your costs prior is essential. For example, are the fees equal or more than the fees you could pay to a fund to manage your investment for you.
We hope Part 1 and Part 2 of this series helped you better understand crypto arbitrage. The next news story will show you just how relevant the topic is 👇
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What Matrix themed nickname has been given to the merger between the companies Keep and NuCypher?
TITAN belongs to Iron finance, a project that began bridging to Polygon’s chain on May 18 in a bid to tap into Polygon’s efficiency and low transaction fees. The project was attempting to boot a partially collateralized stablecoin known as IRON. Due to how the tokenomics of this particular DeFi project functions, when new IRON stablecoins are minted, the demand for TITAN increases, driving up its price. Conversely, when the price of TITAN falls dramatically, as was the case on Wednesday evening, the peg becomes unstable.
“TITAN’s price went to $65 and then pulled back to $60. This caused whales to start selling,” Fred Schebesta, founder of Finder.com.au and Iron Finance investor, told CoinDesk via Telegram. “That then led to a big de-pegging of [IRON]”
As whales began to offload their TITAN tokens, they flooded the market with excess tokens, causing a bank run (a situation when a large portion of users attempt to withdraw their money at the same time believing the bank, or in this case, the protocol, will cease to exist).
In turn, as TITAN began to fall in dramatic fashion so did the pegged value of IRON. As whale dumps further decreased the value of IRON, it triggered the stablecoin’s mechanism that mints TITAN and removes liquidity in a bid to stabilize IRON to $1.
This caused an arbitrage opportunity in the difference in price of IRON and TITAN, which in turn flooded the market with even more TITAN tokens adding additional sell pressure and destabilizing IRON’s price even further. “It was a crypto vortex of money,” said Schebesta.
Some argue the interest from billionaire investor Mark Cuban exacerbated the situation as people discovered his DeFi wallet and alleged him to be the sole provider of TITAN/Dai on Polygon chain.
The project has responded by offering redemptions in USDC but reminded users they will need to wait 12 hours for a time lock feature to pass before it can be executed. A powerful reminder of the importance of tokenomics when evaluating a project. For more on evaluating project metrics, check out this guide.
How Whales Manipulate Crypto Markets with Two Comma Pauper
Two Comma Pauper is a crypto service provider who achieved a successful exit and now actively trades crypto markets.
Did you manage to get it? Keep and NuCypher → Kee + Nu → Keanu.
Both Keep and NuCypher are two well regarded protocols that are merging. They both appear to have realised the competition that they would end up facing so have decided to combine their underlying protocols yet will keep their business plans separate. This allows them to keep individual work separate, yet use the same base structure.
According to Matt Luongo, the CEO of Thesis, the company that built Keep, “The Keep and NuCypher networks have built similar technology with similar goals. Rather than splitting the market, we think we can achieve more together”.
A blog post from NuCyper states that the new platform should be ready to go by August and will involve a release of a new token named “T”.
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Disclaimer: The content in this newsletter is for informational purposes only. Nothing in this email is intended to serve as financial advice. We are not financial advisors. Every investment and trading move involves risk. Do your own research when making a decision.