Today’s crypto traders want crypto trading bots, but found them to be either ineffective or untrustworthy, reports Decrypt.
The purpose of trading bots is to generate profit for users. They will invest as efficiently as possible with your crypto, motivated only by profit and free of human bias.
Traders Don’t Trust Today’s Trading Bots
Adam Cochran, a professor at Canada’s Conestoga College and a crypto-enthusiast, found that many people don’t trust them, and not very many people use them.
“In 2017/2018, when people thought it was easy to load up a bot, copy a strategy and make money, I think this market peaked,” he told Decrypt. “It has since become stagnant and even in decline.”
Cochran polled 10,388 crypto traders, primarily from the r/cryptocurrency subreddit, who reported holding a collective $53.5 million. 88% of respondents stated that “lack of trust of the bot or development team,” kept them from using trading bots.
Most of these services had a massive churn with users abandoning the product even after they have paid for it for greater than 1-month.
This is a red-flag in SaaS it suggests big expectation gaps. pic.twitter.com/YAByMOYgHG
— Adam Cochran (@AdamScochran) November 6, 2020
This sort of “expectation gap” for trading bots means that despite massive demand for a bot that automates trading and guarantees algorithmically created profit, many users shy away from committing to bots for a long period of time.
As stated by Decrypt:
“Poor English” on the platform was the leading reason for lack of trust (83.50%). 77% of respondents didn’t like how few reputable people were talking about Kryll and its unknown team put off 71.5%.
This indicates that many trading bots are created by non-English speaking teams or anonymous teams. As the amount of “rug pulls” and scams in crypto skyrocket with the explosion of DeFi focused products, many crypto users place a premium on responsive and non-anonymous dev teams.
One specific type of user, as noted by the article, is actually using trading bots more in 2020. That group is “sophisticated, institutional investors” who are investing large sums of money. These groups can afford to be patient and likely are able to afford to employ developers to tweak trading bots to suit their specific needs.
What are Crypto Trading Bots?
Cryptocurrency trading bots are computer programs that, with the intention of making a profit, automatically buy and sell different cryptocurrencies at the right moment.
It’s important to remember here that not every bot is profitable, most of them aren’t, really. Getting a functioning bot is meaningless, far less making a profitable one.
Ideally, the bots eventually make a profit, and ideally, in risk-adjusted terms, the profit is better than if you had only purchased the same coins and kept them throughout.
Since the crypto trading bot is a type of investment strategy, the concept behind the strategy needs to be profitable. Equally important is the value of a bot’s execution. Programming a trading bot needs software development skills, background with trading strategy, and business microstructure understanding.
This is likely why institutional investors have the most success employing trading bots. They have the know-how and savvy to adapt a bot to working investment strategies.
That is not to say that retail investors cannot benefit from trading bots. The lack of trust in today’s trading bots indicates that users would flock to an efficient trading bot that can out-trade the cost of admission (i.e. monthly fees) and the opportunity cost of just holding a particular coin instead of trading it.