As fund managers, attempting to enter into a large crypto position can lower their average cost of crypto by executing algorithmically, thus maximizing potential gains. The same applies for a large holder of a digital asset who wants to minimize the impact on the price of the asset when liquidating part of their position. A well-calibrated algorithm breaks down large orders into smaller pieces and executes across multiple trading venues, producing superior results and saving both time and money for the investor.
Liquidity in Digital Assets is Highly Fragmented: in using only one crypto exchange, it is not possible to access even half of the market’s depth. Market Depth is Opaque: the unfortunate reality in digital asset markets is that substantial amounts of volumes reported are fake. Dealing with Low-Quality Exchanges: even for semi-institutional traders that opt to be present on multiple exchanges to amplify their liquidity, there are a variety of risks to face.
For a crypto-investor looking to enter or exit a bitcoin position, the default is for them to log onto an exchange and manually execute their order. This type of order execution triggers many unnecessary risks, including human error, exchange credit risk, and poor liquidity. Algorithmic trading creates a pattern of rules for trading to automatically follow. Computer algorithms are used to execute the trade, bypassing the need for manual processes, enabling simultaneous sourcing from numerous pools, and fostering significant efficiency gains; in other words, saving both time and money.