Hedge Fund to Harness Cryptocurrency and Machine-Learning

Another hedge fund plans to harness the power of machine-learning, artificial intelligence, and Ethereum-based cryptocurrency.

Persons that buy Algo Tokens (ALGO) will also be purchasing a chance to invest in hedge funds picked by Algo Depth, a Cambridge, Massachusetts, based hedge fund. All of Algo Depth’s trading and investment decisions will be made by artificial intelligence using machine learning.

Algo is setting up Algo Marketplace a solution that enables users to purchase hedge funds picked by Algo’s algorithms, a White Paper indicates. Users will be able to purchase the funds via Algo Tokens and receive regular dividends. The payout will apparently be in Ethereum.

Machine Learning at the Hedge Fund

“Algorithms on Algo Marketplace are developed with machine learning, a technology that gives computers the ability to learn without being explicitly programmed,” the White Paper states.

Even though Algo Depth is located in the United States, Americans will not be able to invest in it. The White Paper indicates that only individuals located outside of the USA will be able to buy the tokens in a pre-sale scheduled to begin on 14 November 2017. The Algo Depth team plans to make Algos available for anybody to buy in 2018.

 

The actual investment will be made in US stocks but the funds will be held in Algo Tokens. The ALGOs can be converted into Fund Tokens for qualified individuals to take advantage of machine-learning investment strategies.

Every trade at Algo Marketplace will be tested via machine learning before the actual transaction is executed. The idea is to minimize losses and maximum returns by backtesting results. All the trades will be made in the blockchain to add a layer of security.

Algo Marketplace will initially offer three hedge funds, Deep Learning Momentum, Deep Learning Events, and Machine Learning Reversal. Each is designed to take advantage of a different advantage of a different aspect of artificial intelligence added by Algo’s scientists.

Algo looks a great deal like the mutual funds that many Americans use to invest for retirement. The big difference is the use of cryptocurrency which is designed to let people invest from anywhere in the world.

Scientists from the Ivy League

To make all this a reality, Algo has recruited engineers and scientists from Ivy League Schools and Silicon Valley Heavyweights come in to add their expertise in three-month stints. Past Algo scientists include:

  • Ying Li – UCLA Ph.D., Amazon – a machine learning expert. November 2015.

 

  • Yanchuan Sim – CMU Ph.D., Google (Alphabet NASDAQ: GOOGL) an expert in natural language processing. January 2016.

 

  • Zixuan Zhang – Cornell University Masters also an expert in natural language processing. April 2016.

  • Hai’yi Mao – Northeastern Masters. A deep learning scientist. June 2016.

 

  • Gaurav Shetty – Buffalo Ph.D. expertise in machine learning. September 2016.

 

  • Zehua Wei – Washington Masters Deep learning expert. December 2016.

  • Raahil Sha – Harvard University. Software engineer. May 2017.

 

  • Wodan Ling – Columbia Ph.D. The Pattern Recognition expert. June 2017.

 

  • Xiao Shi – Princeton Ph.D. Another deep learning expert. July 2017.

One of the goals at Algo includes developing a long-only reversal trading strategy in which fast-learning algorithms detect the upper and lower bounds of future price. The hope is that the algorithms can determine when to sell equities to get the most money.

Is This what Jamie Dimon is Really Afraid of?

Nobody knows if this will work but it is sure to attract the attention of regulators. It might be no coincidence, but just two months because Algo Tokens were scheduled to appear the Chinese government started cracking down on initial cryptocurrency offerings. One has to wonder if something like Algo is what Chinese regulators and JPMorgan Chase (NYSE: JPM) CEO Jamie Dimon are really afraid of.

Jamie Dimon and his wife

What’s most interesting is that Algo would be the second AI based cryptocurrency hedge. Another called Numerai was unveiled, earlier this year. Like Algo, Numerai is a hedge fund built by a network of data scientists that runs on cryptocurrency. That potentially threatens investment bankers and other financial professionals’ jobs and fat commissions.

The most intriguing question here might not be if AI-run hedge funds or cryptocurrency hedge funds are possible. I think they are with today’s technology. Instead, it is governments, regulators and the financial industry will tolerate their existence.

The advent of AI-based trading is likely to create a new generation of Luddites on Wall Street and in London’s City. Only time will tell if they will use their political influence in an attempt to ban AI or keep it away from the financial markets.