Yeah, exactly. There were times, when I was doin’ Bitcoin, that I actually felt retarded. Like really retarded. I brushed my teeth retarded. I rode the bus retarded.
Swissquote Bank SA is going to go ahead and take full-crypto-retard to a new level (call it “full-er retard”) with the launch of an actively managed Bitcoin certificate that relies on algos to move in and out of the digital currency based on “technical signals” derived from social media.
And yes, I am serious.
Apparently, they are going to try and use social media sentiment to gauge when to get out of dodge where getting out of dodge will mean fleeing to dollars.
How exactly is this going to work, you ask? Well, the simple answer is that it’s not.
But here’s how Swissquote imagines it will work (from their official website):
How to reduce volatility?
Even though we believe that Bitcoin represents the future, the volatility can be massive, which tends to deter typical stock investors. We built our strategy to focus on reducing volatility by increasing the amount of traditional currency on periods of uncertainties and downturns. This strategy is designed to create more consistent return potential in the long run.How does it work?
- Data is collected from various sources to create propriety indicators: technical patterns, realized volatility measures, buy/sell pressure measures, social media sentiment.
- We have trained a machine learning algorithm to predict the short-term direction of future returns based on those indicators.
- We allocate between 60% and 100% of our portfolio to Bitcoin, depending on the confidence in the predicted future direction, in an effort to reduce the strong volatility. The rest is invested in USD.
Just try to appreciate the sheer amount of absurdity crammed into this idea. They have “trained” a machine to “predict” short-term Bitcoin moves by analyzing “social media sentiment” and depending (in part) on what people are saying on social media, they will allocate anywhere between 60% and 100% of AUM to Bitcoin.
They have literally managed to cram everything bad into one product: algos, social media-based investing, active management, and Bitcoin. You couldn’t dream up a worse vehicle if you tried.
And on top of that, it’s not entirely clear that this makes any sense:
[We are] reducing volatility by increasing the amount of traditional currency on periods of uncertainties and downturns.
How exactly is that different from just “selling”?
Sorry, but this is a joke. And I wish I meant in that kind of way where this is a story out of The Onion – but it’s not.
So, does the algorithm interpret sentiment quantification just based on the use of key words associated with BitCoin (BC), or is it based on a human interface that interprets SM articles about BC and or just the comments on those articles? A large percentage of SM authors and commenters that I have come in contact with (and I probably track this more than most people) – actually have never used Bitcoin in any way. The next subset is the group who trades them, but doesn’t use BC for commercial transactions. The last subset are the very minor percentage that actually use BitCoin for commercial transactions. Except more than 60+ percent of those transactions are in China which does not actively participate in US based SM. The majority of the remaining 40% BC transactions are in Eastern Europe – well under 10% in the US. How does a predominately US driven SM conversation allow for a meaningful market movement algorithm analysis of the global BitCoin market movements? This seems like a remarkable uninformed effort to determine how the tail might wag the dog.
Additionally, you may not need a “special algorithm” to track BitCoin activity in both social media and the internet. Google Trends is public platform that provides a good example of how many people are searching for different aspects of most any topic. For example I suspect the peaks and valleys in the Google Trends chart for “BitCoin price” probably tracks actual interest and price swings without any proprietary technology. (https://trends.google.com/trends/explore?date=today%203-m&q=BitCoin%20price)