How Blockchain Technology Can Help Crypto Investors Make Profits With Less Risk

Bitcoin and other cryptocurrencies have been surging non-stop over the past year, in conjunction with ever increasing inflows. Unfortunately, while some of these gains are genuine bets on the long-term viability and acceptance of cryptocurrencies, a majority of the recent price appreciation is the result of speculation.

One factor driving speculation is “FOMO”, or fear of missing out. As Bitcoin and other cryptocurrencies make headlines for rapid price increases, other investors jump into the market without really knowing or understanding the underlying assets. This leads to a herd mentality where investors jump on the bandwagon simply because everyone else is doing it. According to David Chapman, managing director of a Hong Kong based cryptocurrency exchange, “There is admittedly a lot of speculation in this market.”

When investors buy appreciating assets solely based on speculation and FOMO, they tend to sell quickly when bear markets hit. Studies have shown repeatedly that selling everything in a bear market is one of the worst moves investors make.

Speculation not only hurts rookie investors, it hurts educated ones too. Speculation and wild price run ups distort market prices and make it difficult to analyze assets’ intrinsic values. Within the blockchain sphere, this makes it hard for professional investors to accurately value blockchain startups and ICOs, in addition to individual cryptocurrencies.

One company, Sharpe Capital, is creating a platform that uses smart contracts to gauge market sentiment for multiple asset classes. They also plan to run a proprietary investment fund that operates like an enhanced index fund, in order to generate additional revenue for the Sharpe Capital economy. The platform will provide a more accurate market outlook while also rewarding individuals for participating in the sentiment environment.

Proof-of-Stake and Market Sentiment Measures

The Sharpe Capital platform is able to crowd-source real-time market sentiment from token (SHP) owners. Based upon a proof-of-stake system, each platform user can make predictions about the future values of global equities and cryptocurrencies. The sum total of user predictions is used by an advanced algorithm to create market sentiment measures, in conjunction with the platform’s quantitative modelling system.

Each predictor has a reputation score that is derived from a proof-of-reputation protocol. Because the platform is secured and powered by blockchain technology, each prediction is logged on the ledger. Therefore, every user has an immutable track record from which the platform draws data. Via a proprietary formula, each user is given a respective score.

Using the proof-of-stake / proof-of-reputation combo, the platform issues each user monthly Ethereum payments based upon their reputation score and the size of their stake, i.e. ownership of the platform’s tokens. The predictions of users with high reputations affect sentiment more than those with lower scores, while higher scores result in larger payouts in relation to stake size.

The Impact for Investors on Both Sides of the Spectrum

For new investors, the platform provides a way to learn asset markets without risking large amounts of capital. New investors can initiate a small stake of tokens and begin making predictions on the platform. They don’t need to actually purchase Bitcoins to forecast their future price.

The only risk of loss they have is if the platform tokens decline in value. They are not punished for making incorrect predictions; the only thing that is affected is their reputation score. On the other hand, if their predictions are correct, they can grow their score and begin exercising more influence in the markets.

Thus the platform allows emerging investors to learn capital markets with real assets without having to take on unnecessary risk. What’s more, investors can benefit from their predictions by receiving monthly distributions based upon their reputation score and stake size.

Like new investors, experienced investors can put their market knowledge to work by making predictions on the platform. Correct forecasts coupled with growing stakes will result in higher monthly payouts.

Additionally, tokens can be used to access the platform’s raw sentiment data and proprietary analytics. This is a particularly helpful tool for hedge funds and institutional firms who want to use the wealth of market sentiment available to create their own models and outlooks. The end result is a platform that can help gauge market sentiment while rewarding accurate forecasting.